DSG International, the owner of Currys and PC World, was at the centre of renewed concerns about deteriorating credit conditions yesterday as a big insurer reduced the cover it offers to guarantee that the electrical retailer’s suppliers will be paid.

The move comes as trade insurers face unprecedented demand from suppliers to underwrite trade debts as banks continue to reduce corporate credit lines and concerns mount that some companies will struggle to pay for goods and services they have received.

According to the quarterly Inflation Report from the Bank of England, more than 80 per cent of businesses reported a tightening in credit conditions between August and November.

DSG said yesterday that the move by Atradius, one of the biggest credit insurers in Britain, was not a “DSG-specific issue”, adding that it was also pulling back cover on some other companies. It said that all of its evaluations of creditworthiness were done on a business-by-business basis.

An Atradius official said: “The current economic environment is tough, and IT and electronics are just some of the products being hit by the financial slowdown. We are pulling back cover in some cases, but we are continuing to work with businesses.”

DSG is the highest-profile company affected by the credit insurers so far, which analysts say demonstrates that the credit crunch has entered a new phase. Shares in DSG fell yesterday by 3¾p, or 12 per cent, to 28¼p.

The Association of British Insurers (ABI) says that the absence of bank credit has stretched company credit lines to record levels, with companies effectively borrowing money from other businesses in the supply chain by withholding payment. Standard credit limits, typically 30 days, have been extended to as many as 150 days in some cases while companies deal with a further deterioration in general economic conditions.

Last month Tesco stunned non-food suppliers by asking for a 60-day payment period, rather than 30 days. The Government has vowed to help the cashflow of small businesses by promising that state agencies will pay within ten days of receipt of invoices.

Fabrice Desnos, chief executive of Euler Hermes UK, the credit insurer, said this week: “This is the perfect storm. Everything has gone wrong at the same time.”

Trade insurers, which have written about a third more business in the past year but faced a similar rise in claims, say that they would like the Government to consider adopting measures to reinforce the industry with a form of state guarantee.

Last month President Sarkozy of France promised to examine the possibility of a state guarantee for credit insurers to prevent a seizure of supply chains causing the collapse of small but profitable companies.

Nick Starling, director of general insurance for the ABI, said: “Trade credit insurance claims are a good indicator of what is happening in the UK economy. The last time we saw such a spike in the amount of bad debt and claims was in the period leading up to and during the dot-com boom and bust in 2000.”

Jo Aaron, of Atradius, said that the numbers of suppliers seeking refuge was related to the lack of credit from banks. She added: “We’re getting more and more calls from smaller businesses who supply really significant UK names — people who you would expect to have a great deal of stability — who are pushing credit terms. The knock-on effects are enormous.”

EUK, the wholesale division of Woolworths that sells books, CDs and video games to other retailers, is demanding cash in advance for goods in some cases, it was reported last night. EUK has been forced to do so because some of its own suppliers have had their credit insurance revoked, fearing that Woolworths could collapse, forcing EUK itself to pay cash for goods.

Meanwhile, Best Buy, the No 1 electronic goods retailer in the United States, which will take on DSG next summer by opening the first of 200 megastores planned across the UK and the Continent, said yesterday that its profits would fall because of seismic changes in consumer spending. The profit warning came two days after Circuit City, a rival, which itself was hit by the withdrawal of trade credit insurance, filed for bankruptcy protection.

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