Recruiters are accusing credit insurers of withdrawing credit insurance as the health of the economy deteriorates and bad debts are certain to be on the increase.

Credit insurance pays out in the event that clients are unable to pay recruiters’ invoices. But Jason Perry, managing director of Hastings-based general recruiter ASL Recruitment, claimed that credit insurance supplier Atradius had withdrawn £150,000 worth of cover for four of his clients.

The clients operate in the manufacturing and estate agency sectors, which are among the sectors the most affected by the economic downturn.

“What is the point of credit insurance if they remove it from clients that you want to protect yourself from?” he said.

The withdrawal of credit lines has meant Perry has been forced to renegotiate more favourable payment terms with his clients, stressing a lack of cover has increased his financial risk. As a result, debtor days have been reduced to 14 days from around 30.

Atradius spokesperson Jo Aaron refused to comment on Perry’s situation but admitted it had withdrawn credit in 5% of cases, although it was “always as a last resort”.

Aaron argued Atradius was “reacting prudently to current economic conditions and to our forecasts for 2009”. She said that cover was withdrawn “either because a company has stopped providing us with the necessary information to effectively analyse their credit risk, or because their risk profile has deteriorated to a highly risky state”.

Aaron denied that the company was withdrawing cover generally in hard-hit sectors of the economy and continued to act “on a casespecific basis where we see dramatic escalation in risk”, she said.

Neil Smith, managing director of engineering, manufacturing and technical recruiter Kinetic, told Recruiter that agencies were having credit insurance withdrawn “all the time”.

He said that in the past two or three weeks one credit insurer had pulled five or six lines of credit on “good clients”.

The company now had no cover for £80,000-£90,000 of its business against bad debts, equivalent to 10% of the company’s annual profits, he said.

Smith said that despite the lack of cover, Kinetic had decided to continue doing business with its clients. “What choice do I have?” he asked, with plenty of other agencies keen to take his company’s place.