Earlier this week, I suggested that the bankruptcy of Circuit City was a foretaste of what could await us in Britain. The second-biggest electronics retailer in the United States was brought down partly by its suppliers, as they started to demand upfront payment for all goods before they were shipped. The credit crunch is, it seems, beginning to squeeze US companies on all sides — in terms of consumer demand, bank lending and, increasingly, trade credit.

Yesterday brought further evidence of how this trend is spreading to Britain. It emerged that Atradius, one of the biggest credit insurers in the country, has reduced the cover that it offers to guarantee payments for suppliers to DSG International, the owner of Currys and PC World.

Although struggling in very tough markets, DSG is not in trouble and the move shows how credit insurers are targeting healthy companies as the pernicious lack of trust in the banking sector spreads to the broader economy.

In its Inflation Report yesterday, the Bank of England said that its regional agents had reported that businesses were finding it increasingly difficult to obtain trade credit. Some firms said it had made it hard for them to meet orders.

With banks pulling back their lending to businesses, companies have been trying to borrow from other businesses in the supply chain. Stronger companies are squeezing weaker ones, whether they are suppliers or customers. Last month, Tesco started to tell non-food suppliers that it would pay in 60 days, instead of the previous 30.

Meanwhile, suppliers’ increasing concerns about the creditworthiness of their customers has prompted a huge increase in the number of companies seeking to insure their payments. Total debt insured by credit insurers increased by 36 per cent in the year to June, while the value of claims jumped by 31 per cent.

Nervousness among electronics suppliers is understandable, given the slump in consumer confidence and tightening of credit card lending, which is having a serious impact on sales.

Best Buy, America’s No 1 electronic goods retailer, sent another shiver through the stock market yesterday when it reported “rapid, seismic changes in consumer behaviour” and lowered its profit forecasts.

Best Buy will take on DSG next summer as it starts the rollout of up to 200 megastores across Europe after its tie-up with Carphone Warehouse. DSG’s share price has been buoyed recently by speculation of a bid from Best Buy. However, the shares fell 12 per cent yesterday as Fitch Ratings downgraded its debt, citing the deterioration in consumer spending, particularly for discretionary goods.

The pressure on companies in terms of trade credit is very worrying, given that the hopes for an early recovery in bank lending are increasingly forlorn. As the Bank of England admitted yesterday, there is a risk that confidence may take a lot longer to return to the credit markets than it expected. Despite the pressure from the Government, banks may become more reluctant to expand lending as they try to reduce their reliance on Bank liquidity and on wholesale funding.

This is one of the principal risks to the Bank’s forecast that the economy could contract by 1.5 per cent to 2 per cent next year. Some economists are forecasting a steeper and longer recession that would be worse than the downturn in the early 1990s.

If that is where we are heading, it will not only be retailers of flatscreen televisions that get into trouble.

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