AO World shares crash as insurer cuts cover

AO World

AO World has seen its share price fall by more than 15 per cent this morning following reports that its credit insurer Atradius has cut cover for the firm’s suppliers.

Over the weekend The Sunday Times cited market sources as saying that Atradius has slashed cover for suppliers to AO, which sells everything from washing machines to TVs and fridge-freezers.

Credit insurance is a vital part of the retail supply chain, protecting suppliers against the risk of customers going bust between the point of accepting an order and payment being made.

When cover is not available, suppliers tend to demand payment upfront, damaging a retailer’s cash flow.

In its annual report last year, AO said it was “heavily reliant” on its suppliers and their insurers maintaining limits at existing levels. It said worse terms could cause cashflow issues but that it had enough liquidity to cope.

It is understood that AO World may face pressure to address worries over its cash position in light of the share drop and reported credit insurance cover cut.

Credit insurance protects suppliers against the risk of retailers collapsing before payment for goods is made and without this cover in place, suppliers often demand upfront payments, increasing cash flow woes.

AO World has already seen its share price decimated in recent months.

Revenues have dropped following a a boom amid the pandemic, when bricks and mortar rivals were forced to shut.

The group issued its third profit warning in six months in April.

Last month AO also announced the closure of its German business, which it first launched in 2014, because of the “continuing deterioration in the outlook”.