The scheme aims to help speed up the economic recovery, by ensuring the continued availability of trade credit insurance in the face of unprecedented financial pressures currently being experienced across most business sectors.

It will help trade credit insurers to continue to provide insurance for a wide range of businesses across the country by maintaining levels of cover than they otherwise would not have been able to do.

The scheme reflects similar state-backed support being developed in other European countries, and Canada, where schemes are being developed to help businesses continue to benefit from affordable trade credit insurance protection.

Trade credit insurance protects businesses if customers in the supply chain who owe money for products or services do not pay their debts or pay them later than the payment terms dictate.

Insurers provide valuable ongoing credit management support to their customers, advising and providing information on the financial strength of those buyers and markets that they are considering doing business with.

Over the past two months the ABI, and a number of trade credit insurers, have worked closely with the government to make the case for such a facility given the difficult trading environment for businesses that lies ahead and, in the last few weeks, have been working intensively with the Government to agree on the detail.

Insurers have until 15 June to formally indicate that they wish to participate in the scheme, which will be backdated to 1 April. The scheme will run until 31 December 2020, with a review on potentially extending it taking place at the end of September.

Under this temporary scheme, the Government will act as a reinsurer to the trade credit insurance industry, sharing the risk of losses arising from business insolvency with insurers. Under this scheme insurers will take 10% of claims that result from business failure while government will take 90% of the premium and claims.

This sharing of risk will allow insurers to provide wider cover to UK businesses affected by the COVID-19 crisis, and to aid companies to resume trading, knowing that they are protected from the failure of trading partners to pay for goods and services supplied.

UK businesses covered by trade credit insurance will be included automatically in the scheme if their insurer participates in it. They should consequently find it easier to access cover in the market that would otherwise have been difficult to provide.

James Dalton, director, general insurance policy at ABI, said: “We welcome this temporary scheme, which reflects the pivotal role of trade credit insurance in helping businesses to recover from the unprecedented effects of the COVID-19 crisis.

“Since we alerted the Government of the need for it, we have worked closely with them to make it a reality. Maintaining cover as far as possible between suppliers and their clients will be a key component in allowing the UK economy to overcome the challenges of the current crisis.”