The Christmas trading period is a “Russian Roulette” quarter for retailers, Julie Palmer, a partner at law firm Begbies Traynor explains. “The retailer has to decide to what level they are going to stock their stores, which places heavy demand on their cash flows to fully stock if the suppliers won’t give them credit.”
Suppliers obtain credit insurance to protect themselves in the event that customers do not pay their bills. It bridges the gap between the date when a supplier ships its goods to a retailer and when it gets paid for those goods. “But if they can’t get credit insurance then they are not going to supply, and if they don’t supply, then that accelerates the retailer’s move towards insolvency,” Palmer said. Comet suffered further withdrawal of credit insurance after rumours that it was up for sale, prompting suppliers to become increasingly nervous over the company’s future.