Credit Insurance and Retailer Cash Flow

A fantastic 8-minute video from Newsnight is ideal for A2 students looking at the causes of cash flow problems - particularly for retailers…

Newsnight reporter Terry Stiasny looks at the small businesses who have suddenly had the rug pulled from under them after credit insurance has been withdrawn. Big names like Woolworths, MFI and Empire Direct were directly affected by the withdrawal of credit insurance - it is a significant cash flow issue in the current slump.

Students may need to do a little background research on the role of the credit insurer. A good way to think about credit insurance is that of a cash flow “middleman” who sits in between manufacturers (suppliers) and retailers (customers). The credit insurer looks at the credit rating and risk of the retailer. If happy, insurance is provided to the supplier that payment for goods supplied to the retailer will be guaranteed. The crunch comes along and, all of a sudden, the risk of suplying retailers looks too high, so insurance is withdrawn. What does the supplier do? Either demand payment upfront from the retailer for stock (few retailers have such cash available) or simply refuse to supply.

A superb video, rich in content and options for further discussion and analysis.