The trade credit reinsurance scheme, which has been agreed following extensive discussions with the insurance sector, will see the vast majority of TCI coverage maintained across the UK.

The scheme is available on a temporary basis for nine months, backdated to 1 April and running until 31 December, with the potential for extension if required.

TCI underwrites an estimated £350bn of economic activity of more than 630,000 businesses in the UK each year. It insures suppliers selling goods against the company they are selling to defaulting on payment, giving businesses the confidence to trade with one another.

The government said that due to coronavirus and businesses struggling to pay bills, there is a risk of credit insurance being withdrawn or premiums increasing to unaffordable levels, which could cause serious issues for liquidity and working capital across business supply chains.

The scheme will be delivered through a reinsurance agreement that is open to all insurers currently operating in the UK market, covering both domestic and overseas trade with payment terms of up to two years.

Under the rules, participating insurers will be required to comply with certain undertakings regarding the conduct of their business during the period of the scheme. This includes conditions that insurers will forgo profits and will not pay dividends or bonuses for senior staff for their guaranteed TCI business.

Alok Sharm, business secretary of state, said: ‘TCI is a daily necessity for hundreds of thousands of businesses across the UK – particularly those in non-service sectors such as the manufacturing and construction sectors.

‘Our £10bn guarantee gives peace of mind to businesses, allowing them to continue to trade and maintaining liquidity in supply chains. This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic.’

Flora Hamilton, CBI director of financial services, said: ‘The new government guarantee to backstop trade credit insurance will be welcome by businesses across the UK.

‘The TCI scheme will support supply chains, enable many to prepare for restart in earnest and bring employees off the job retention scheme and back into work.’

The scheme will be followed by a joint Department of Business, Energy and Industry Strategy/Treasury-led review of the TCI market to ensure it can continue to support businesses in future.

Todd Davison, MD of Purbeck Insurance Services, insurance provider said: ‘The Trade Credit Insurance guarantee should mean many small businesses, particularly those in the construction and manufacturing sectors can continue to access affordable insurance to support trading with other businesses and provide confidence within the supply chain.

‘It will be critical for policymakers to work closely with insurers, funders and businesses for the scheme to work effectively and to promote liquidity within these markets.

‘It remains crucial however that to help mitigate the risks of non-payment, small businesses keep talking to suppliers and customers who are likely to be in the same position. Constructive, transparent dialogue within the supply chain can help manage expectations and identify a collective way forward.’