The Association of British Insurers has warned of a potential “domino effect” on supply chain firms following the collapse of Carillion.
The trade body estimated that £31M will be paid out in claims by trade credit insurers to firms owed money when the construction giant went into liquidation earlier this month.
ABI assistant director Mark Shepherd said Carillion’s demise was a “powerful reminder of how trade credit insurance can be a lifeline for businesses in these uncertain trading times”, adding that one insolvency could have severe consequences for firms further down the supply chain.
“This insurance is an essential business tool that helps firms trade and expand in the UK and overseas,” said Shepherd. “For all businesses, large or small, bad debt could easily put their day-to-day operations at risk, threatening the jobs of their employees.
“One insolvency can risk a domino effect to hundreds of firms in the supply chain.”
The estimated £31M in claims would represent nearly 15% of the £210M total paid out by trade credit insurers in the whole of 2016, the last year for which figures are available.
Earlier this week, it emerged that Leeds City Council was recouping its costs for an unfinished cycle highway scheme from bank HSBC. The council had included a clause in its contract with Carillion to provide an “on demand bond” from a bank to enable it to claw back its costs should the contractor go bust.