HMV dealt new blow by credit insurers

Credit insurers have added to the woes of HMV, the struggling entertainment and book retailer, by scaling back cover for some of its suppliers. Two music and entertainment companies have said they can no longer get credit insurance to supply products to the retailer, which issued a profits warning this month after dreadful Christmas trading.

It emerged yesterday that the UK arm of a major manufacturer and distributor of CDs and DVDs has claimed that credit insurers have "significantly" reduced its insured credit limit on all HMV entities.

In an email, the supplier's head of credit and collections said that "based on the current HMV balances, the limit is not sufficient to support any sales on an insured basis moving forward".

But Simon Fox, the chief executive of HMV, which owns the book chain Waterstone's, said he was unaware that credit insurance had been so drastically scaled back, although he added that he would not necessarily know, as credit insurers agree terms with suppliers themselves.

On 5 January, HMV said its full-year pre-tax profits would be at the lower end of City guidance of between £46m and £60m. An HMV spokesman said credit insurance limits normally reduce after the peak Christmas period. Under normal circumstances, this can reflect reduced stock levels.

The scaling back of credit insurance can put pressure on a company's cash flow, as suppliers often demand a change in terms to continue delivering goods, such as payment upfront. Credit insurers seek to protect suppliers against the risk of non-payment, such as in the event of a company ceasing trading.