BRC Quarterly Credit Conditions Monitor Q July - September 2009

Table of Contents 1.Results1 2.Trade Credit Insurance4 3.The Sample8

1. Results

Main Results Our survey showed credit conditions remained stable for most retailers in Q However, SME retailers continue to face problems attaining credit, over a quarter claiming that credit conditions had got worse. Both large and small retailers continue to face problems associated with trade credit insurance. 1 85% of large retailers and 68% of SME responding claimed that credit conditions had remained the same over the last three months (July – September). 28% of SME respondents claimed that credit conditions had deteriorated further in Q3 2009, but no large retailers reported conditions worsening. Of those SME retailers that experienced a further contraction in credit; –29% have reduced staffing levels –24% have reduced inventory levels –19% have reduced capital expenditure 85% of large retailers and 56% of SME retailers responding claimed that the cost of credit had not changed in Q % of large retailers and 38% of SME retailers claimed that the cost of credit had increased. The reduction or withdrawal of trade credit insurance has affected 38% of large businesses and 28% of SMEs in Q % of large retailers and 74% of SMEs thought that insurers were not in a position to assess risk accurately When asked about the Government’s Trade Credit Insurance Top-up Scheme, 85% of large retailers and 95% of SME retailers claimed that the scheme had not worked. As a result, 54% of large retailers have used other arrangements – most using early settlements. When asked if the top-up scheme should be extended beyond its planned closure on 31 st December 2009, 77% of large retailers and 59% of SME retailers agreed that it should.

Credit Conditions Our survey revealed that credit conditions had remained the same for 85% of large retailers and 68% of SME retailers in Q Over a quarter of SME retailers responding claimed that credit conditions had deteriorated further. However, no large reported credit conditions worsening. 2 In the last three months, have credit conditions offered by your bank: If credit conditions have worsened, what has the impact been? Note: SMEs only

Credit Conditions The survey showed that the cost of credit remained the same for the vast majority of large retailer, while less than one in ten claimed that the cost had increased. However, almost two in five SME retailers claimed that the cost of credit had increased in Q Has the cost of credit from your bank increased in the last three months?

2. Trade Credit Insurance

Trade Credit Insurance The survey confirmed that withdrawal of trade credit insurance continues to plague the supply chain of many retailers. Almost 40% of large retailers claimed that they had experienced disruptions in their supply chains as a direct result of trade credit insurance being reduced or withdrawn in Q In the last three months have you experienced disruptions in your supply chain as a direct result of trade credit insurance being reduced or withdrawn from your suppliers? If you have experienced problems in your supply chain, can you estimate what proportion has been affected?

Trade Credit Insurance 4 Do you think that trade credit insurers are in a position to be able to assess risk accurately? It is clear that retailers do not believe that insurers are in a position to accurately assess risk. “They have insufficient real-time data for their key risks.” Anecdotal Evidence “They are naturally conservative due to volatility and changing circumstances of credit.” “Some credit insurers appear to have a lack of understanding of individual companies - they apply industry-wide criteria to individual companies without looking at specific company circumstances (e.g. group structure, funding levels, profitability). The risk assessors at the credit insurers appear impotent/apathetic to override the industry-wide risk factors that have been set by the insurer's risk committee. It is easier for the risk assessors to just repeatedly say "No cover" rather than argue for the insured company, with the risk that this then backfires personally on the assessor.”

Top-up Scheme The survey showed that the vast majority of retailers believe that the trade credit insurance top-up scheme has not helped. However, most retailers believe that the scheme should be extended past its current deadline. 6 Has the introduction of the Government’s Trade Credit Insurance Top-up Scheme helped maintain the supply of goods to your business? The Government’s Top-up Scheme is due to stop on the 31st December Do you think it should be extended?

Top-up Scheme Over half of large retailers responding to the survey had used alternative arrangements to counter the problems in the trade credit insurance market. 6 Have you used other arrangements to counter problems in the trade credit insurance market? “Accelerated payments for a discount. Investigating new factoring products for suppliers.” “Agreed alternative payment schedules.” “ Payment on account, changed suppliers, cross- company guarantees.” “Early payment” “Attempted to move to early settlement discount.” If yes, what arrangements have you used?

3. The Sample

The Survey Sample The BRC Credit Conditions Monitor is comprised of 63 respondents 9 Large RetailersSME