A leading credit insurer has warned the timber trade that relying on long-term business relationships could be a “recipe for disaster” in the current uncertain economic climate.

Credit Indemnity Financial Servcies (CIFS) also told TTJ that it had moved from looking at quarterly trading figures of policyholders to monthly, in order to ascertain the latest positions on companies.

CIFS underwriting manager Neil Payton said business had picked up in March but many companies were suffering cash flow problems as a knock-on effect from the arctic winter, which was coinciding with government cutbacks about to kick in, inflationary pressure affecting consumer demand and the VAT increase.

Although the level of insolvencies was yet to rise, he reported a significant increase in the number of repayment plans policyholders were having to put in place with their buyers. But he warned that not every repayment plan worked and the industry must be braced for higher levels of company failure.

He reassured the trade by saying CIFS was not looking to react in a knee-jerk fashion, “just because companies have had a couple of months.”

Mr Payton said it was important companies were open about their positions as credit insurers needed clarity on their current situation.

“We’re hearing about people who are in trouble but when we ring them they say they are fine.

“Do not be ashamed to show some bad results. We expect there to be some losses because of the economic situation we are in, but it does not mean companies will be on the brink.”

“March’s results will be a test to see how well companies have pulled themselves out of the previous three months,” said Mr Payton.

“Being a long-established and family-run business does not mean you are better off than a start-up company.

Mr Payton reported a surge in companies signing up that had not been credit insured for a couple of years.

“We will continue to be a support for the timber trade but in order to do that companies will need to be more open.”

Mr Payton said a credit insurer’s outside input was helpful because it was objective and removed from any history or relationship between the policyholder and customers.

Mr Payton said CIFS was predicting the market to be extremely tough for another year.