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UK Retailer Debenhams Denies Credit Insurance Cash Crunch

U.K. retail giant Debenhams said it is not in a cash flow crunch following reports that insurers have cut coverage of the company's suppliers, reports in Euronews said Monday (July 16).

Sunday reports said insurers had cut trade credit insurance coverage for Debenhams suppliers. The insurance product protects suppliers against the risk of non-payment should corporate customers go bankrupt, shutter doors or fail to pay invoices. The initial reports sent Debenhams shares down by 8 percent on Monday, reports said.

"Debenhams has a healthy balance sheet and cash position," the company said in a statement. "All the credit insurers continue to provide cover to our suppliers and we maintain a constructive relationship with them. It is well documented that market conditions are challenging, but Debenhams continues to be profitable, has a clear strategy in place and is taking decisive actions to strengthen the business."

Reports noted that the retailer previously cut performance forecasts and noted it may divest assets to raise cash. The company closed storefronts last year amid falling profits and sought to enhance its eCommerce presence following the recruitment of new CEO Sergio Bucher in 2016.

"As a mid-market department store, Debenhams is being squeezed by more premium players, specialists and online," said Liberum analysts, the publication noted. "Structural changes persist and we see the company as a value trap."

Trade credit insurance is an innovating industry as analysts warn that supplier payment terms are lengthening around the world. Euler Hermes released a report in May that found the global average Days Sales Outstanding hit 66 days, and is likely to continue to grow.

"Companies are extending a lot of trust in the way that clients pay them — it is a loosening of discipline," said Euler Hermes Chief Economist Ludovic Subran in an interview with the Financial Times at the time. The trade credit insurance provider noted that the trend is part of global economic recovery.

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