Businesses in Northern Ireland are turning down work because they cannot obtain insurance amid the economic downturn.
Fear of bad debts has led to insurers withdrawing with no notice — increasing the risk to companies, according to the Confederation of British Industry (CBI).
Trade credit insurance is obtained to protect businesses against their clients not paying bills or going bankrupt. But with some suffering cashflow problems the danger for underwriters has grown.
Nigel Smyth from the CBI said yesterday: “This is extremely worrying and has the potential to make a bad situation worse.”
Mr Smyth was giving evidence before the Assembly’s Enterprise, Trade and Investment Committee.
He said many companies were experiencing the withdrawal of credit with no notice, leading to increased risks for companies.
“We have evidence that some companies have turned down sales opportunities as a result,” he added.
“This does reflect the situations where bad debts are rising and hence the risks to the insurance companies while many companies are also experiencing an increase in debtor days.
“This is a national issue and we believe it will require government intervention.”
Almost a fifth of enterprises have identified cashflow as one of their greatest challenges, a recent survey found.
A spokesman for the Association of British Insurers said: “This has been brought about by the failure of firms to obtain credit. It isn’t that the insurers are causing the problem.
“Normally it is a result of these firms having problems getting credit. Once cash starts flowing again then that will be reflected in wider availability of trade credit insurance.”
Mr Smyth said the overall picture for Northern Ireland was that access to credit was not as difficult as in the rest of the UK and called for more engagement with the four main local banks and other lenders.
He said Northern Ireland was sheltered by a disproportionately large level of public expenditure but still exposed to the downturn.
“In the longer-term we might be more exposed to a slow recovery as the UK government seeks to repair its balance sheet and public expenditure growth is severely constrained post 2011,” he added.
“Northern Ireland is faced with a more pronounced housing market correction which is taking its toll on the entire housing supply chain.”
He called for an urgent and concerted response across the Executive.
Enterprise Minister Arlene Foster chaired a meeting of the Economic Development Forum (EDF) of business, worker and government representatives today considering proposals on infrastructure projects and tourism marketing.
“I and my Executive colleagues remain committed to helping companies through this difficult period. We will be considering the proposals from EDF in that light,” she said.