One of EEF's priorities during the recession has been lobbying government to tackle the problem of credit insurance.
Credit insurance is a funny finanicial product. Take a company like Woolworths. Woolies' suppliers would have taken out credit insurance to protect against the risk that, Woolies couldn't pay their bills. But the twist is that credit insurance is not really insurance. When times get tough, credit insurers can reduce or withdraw existing coverage.
And that's what happened to Woolworths. Because suppliers no longer had credit insurance covering their contracts with Woolworths, they demanded cash up front. This just exacerbated Woolies cash flow problems and hit their suppliers at the same time.
Our view is that the speed at which credit insurance is being withdrawn or reduced threatens the supply networks that are at the heart of the UK's manufacturing base. And that's why government should step in provide some sort of guarantees where credit insurance is reduced. However, if cover is withdrawn completely, that's probably a risk too far for the taxpayer. We know that government officials have been working away on a solution, but so far have heard or seen little in the way of tangible action.
But that may be changing.
Behind the scenes, the Bank of England has been working with credit insurers and large comapnies that are in danger of having their coverage withdrawn. The Bank's approach is to get all parties around the table to have an open and honest conversation about the company's financial health and business prospects.
The idea is to provide transparency, so that they insurers don't withdraw coverage from companies that, while struggling, are still fundamentally viable.
The next stage is to turn this voluntary, ad-hoc approach into an informal code. The FT has the details:
"All sides are working on written guidelines that would take the 'London Approach' used when regulating banks and apply it to the credit insurance industry. This approach is the informal, non-statutory way of dealing with companies in financial difficulties when they go through periods of restructuring. The Bank asks lenders to keep faith with the company in question and encourages all sides to be as open as possible in their dialogue."
This would be a vastly different apprach to the credit insurance sector and would be crucial to the manufacturing supply chain.
But could this possible pave the way for more tangible, monetary intervention? It's just a thought, but maybe the government would only guarantee credit insurance contracts that had applied this more open and deliberative approach.