Credit insurer Coface has withdrawn credit insurance cover for the high street chain Woolworths' suppliers.
The decision means that suppliers could insist on earlier payment for goods. Credit insurers provide cover for suppliers, protecting them against losses if a company fails to pay its bills.
But Woolworths insisted that it was comfortable with its financial position.
"Woolworths continues to work closely with suppliers and credit insurers in what is clearly a difficult environment for both the retail and wholesale sectors," said a Woolworths spokesman.
He added that "a substantial proportion" of Woolworths retail suppliers have traditionally operated without credit insurance. "We are confident that we will be able to ensure a successful Christmas for our suppliers and customers," he said.
DSG shares hit by insurance review
9 hours ago
Shares in the owner of PC World and Currys have been rocked after an insurer scaled back its cover against the firm being unable to pay its suppliers.
Consumer electronics retailer DSG International was dealt the blow by the world's second largest trade credit insurer, Atradius.
News of the insurer's move to reduce its exposure to potential losses as part of a wider review of the retail sector sent shares in DSG tumbling as much as 20%.
Other high street retailers such as JJB Sports and Woolworths have been hit by a similar tightening from other insurers as the retail climate darkens.
An Atradius spokeswoman refused to comment on specific cases, but said: "Every trade credit insurer is looking at the non-essential end of the consumer goods market because consumers are cutting back on spending."
A DSG spokesman said: "While it is true that Atradius has reduced but not withdrawn cover across the entire retail sector, it is not a DSG specific issue - it is more about Atradius and how it manages its business.
"Our suppliers still have access to credit insurance, they continue to supply us and there have been no changes to our terms for suppliers."
But a trading update from DSG last month highlighted the harsh conditions faced by the firm in the UK, following a 7% drop in like-for-like sales for the six months to October 18.
The figure included a 7% drop for the company's UK and Ireland electricals business and a 11% fall for PC World.
This week the pressure on the sector increased after US consumer electronics giant Circuit City - another company whose trade credit insurance was withdrawn - filed for bankruptcy protection in the US.
Insurers pull cover from GM and Ford suppliers
By Kiran Stacey, John Reed and Jonathan Guthrie
Published: November 14 2008 02:00 | Last updated: November 14 2008 02:00
Troubled US carmakers General Motors and Ford Motor have been given a potentially devastating vote of no confidence by three big European credit insurers, which have removed cover from their suppliers.
The withdrawal of credit insurance - which covers suppliers against the risk of the car companies' failing - has previously hastened the demise of a string of European companies, with suppliers to retailers and construction companies finding cover increasingly hard to come by.
Euler Hermes, Atradius and Coface, which control more than 80 per cent of the world's credit insurance market, are refusing to write policies for suppliers trading with GM or Ford on credit.
GM and Ford are two of the biggest groups ever to be blacklisted. The cut-off of cover will primarily affect big operations in Europe, where the insurers do the bulk of business. US suppliers largely operate without insurance.
The move leaves three possible scenarios: GM and Ford can start paying upfront for goods; they can hope their suppliers will trade uninsured; or they couldbe unable to buy the parts they need for car production.
The insurers have risk assessors working closely with the companies and are party to details not released to the market.
Even if the carmakers can keep the supply chain working, the refusal to provide cover will further weaken investor confidence.
GM last week said it might run out of the money needed to operate its business by early next year, and Ford revealed it had burned through $7.7bn (£5.2bn) in the latest quarter, twice the rate in the first half.
Detroit's three carmakers are lobbying Congress for funds to help survive the downturn.
i have never sen this before not even in the last recession,im just wondering how bad this could get.