Argos and Homebase parent Home Retail Group has written to its suppliers urging them not to do business with retailers that have had their credit insurance removed.

In a letter, seen by Retail Week, Home Retail Asia managing director Graham Kibby wrote: “In the event that credit insurance is refused for one of your customers we strongly recommend that
you do not do further business, as it is quite likely that you will not get paid.”

He said it is “an extremely dangerous practice” for suppliers to continue to work with any open account customers that cannot get credit insurance cover.

The move has sparked anger among rival retailers, with critics accusing Home Retail of piling more pressure onto struggling store groups already suffering from a withdrawal of credit insurance.

Many retailers have had some or all of their credit insurance scaled back since the recession hit, including DSGi and Focus. A withdrawal of credit insurance was one of the key contributors to the demise of 99-year-old chain Woolworths.

A Home Retail spokesman said that it accepted “the letter could have been worded better” but it was intended to raise suppliers’ awareness of a “serious issue”.

He said that Home Retail wanted to offer some “practical advice that would help to protect their interests” and added it is “not company policy to insist on suppliers holding credit insurance”. The letter also said Home Retail’s credit rating “remains very good”, and added “like many, we are experiencing a slowdown in current trading, but we do have cash in the bank and retain the confidence to lend within the banking sector”.

The spokesman said the letter was sent to a “small number of Argos and Homebase suppliers in Asia, alerting them to an industry issue”.

But one rival retailer feared suppliers would stop doing business with them as a result. The retailer said: “Home Retail is a big player. If you’re a supplier you might take notice.”

Retail Knowledge Bank senior partner Robert Clark said: “It’s a perfectly valid point that Home Retail doesn’t want its suppliers getting over-committed to retailers that might collapse,
but there are other ways to go about things.”