As Philip Green’s Arcadia fashion empire slips into administration, so the risk of invoices going unpaid for the group’s thousands of suppliers looms worryingly into view. SMEs supplying high street names spanning Topshop, Burton, Evans and Wallis risk an estimated £250m of invoices going unpaid, triggering a ripple effect that could threaten the existence of hundreds of small businesses and jobs further down the supply chain. “I am worried about all of our customers at the moment,” said one London-based fashion wholesaler.

“We estimate as much as £250m of unsecured debts will be left to Arcadia’s suppliers,” adds Flemming Bengtsen, CEO at Nimbla, a fintech trade credit insurer specialising in the SME space where companies typically operate on thin margins and are often badly served by the traditional credit insurance market. “Our customers insure because they operate in markets that often have a high credit risk, and because they need credit insurance to access bank funding and other finance,” he says.

Trade credit insurance protects companies from the risk that their customers go bust before paying for goods or services and is a vital cog in the economy that allows companies to trade with each other with confidence. However, the likelihood of a swathe of corporate failures means many credit insurers have “shut their books” to new business, says Bengsten. Indeed, trade credit insurers are facing huge claims, with Morgan Stanley estimating that globally coronavirus-related trade credit insurance payouts could run to US$46bn.

Insurers say that without government support they would have been unable to continue offering cover or would have to increase prices sharply. In the UK that support came via £10bn Trade Credit Insurance Reinsurance Scheme launched in June and set to end on 31st Dec 2020. Although Bengsten believes there is “a high chance” the government will extend it, companies and insurers are still waiting to hear. Under the scheme, businesses buy cover from trade credit insurers such as Euler Hermes and Coface as usual, and these insurers in turn buy cover for themselves from the government. The scheme covers domestic trade, imports and exports.

The picture grows more complex given the fact many dangerously insolvent businesses are still trading thanks to government support via the furlough scheme or easy access to credit. Arcadia aside, there haven’t been that many really big losses yet, says Bengsten, who predicts a flood of corporate failures in the pipeline. He says many SMEs are already heavily leveraged and unable to withstand further stress to their business; they need their suppliers to offer credit terms as they cannot borrow more and in equal measure, they cannot afford for their debts to go unpaid.

Describing a perfect storm, he says that many companies, large and small, rely on trade credit for their working capital. When that disappears, their working capital will also disappear, and their businesses will fold in a domino effect. “Insurers are genuinely concerned that losses will go through the roof,” he concludes.

Bergsten offers key advice to suppliers worried about payment.

Forget what you think you know about your trading partners, they may have been strong historically but can you really be sure they are now? Engage with them, and don’t be afraid to ask difficult questions.Check your customers’ credit rating frequently, conditions are changing rapidly. Don’t assume a company that was creditworthy before still is, he warns.

Stay on top of overdue debts. Every insured invoice with Nimbla includes a debt collection service. “Figure out what the critical number for your company is; look at your exposure to debtors and insure that amount; look at customers in danger and ensure as much as you can. Insurance doesn’t involve long term commitments, and you can ensure what you need.

If you do have overdue invoices, encourage your buyers to start a repayment plan as soon as possible. “Keep talking to them; if payments start to slow which they typically do before things go south, try and get a payment plan going,” he says.

Even the safest-seeming and best-rated companies are prone to failure. It is always best to insure. Consider what value invoice you can afford to lose, and above what value you cannot.