Credit insurers have been accused of damaging sound businesses by withdrawing or reducing cover.

Credit insurance oils trade and gives suppliers confidence in their customers. In the final resort, it pays out if clients go bust.

But recession has made credit insurers more cautious and they have begun to take action that companies claim is either premature or totally unnecessary.

Woolworths’ demise was thought to have been hastened by withdrawal of cover to suppliers who then demanded prompter payment or upfront cash.

Ashford-based Brake Brothers, the giant food distribution company backed by US private equity firm Bain Capital, is one of several companies to express anger at the actions of credit insurers.

Finance director Matthew Fearn told the Financial Times of his anger at the amount of time he had to spend trying to convince insurers that Brakes was in good shape.

"I am absolutely furious. I have spent the last three weeks speaking to people when I could have been doing more profitable things. We had a good growth strategy in 2008 and strong cash flow, and we don’t have to refinance the business for a few years. But I have had to spend countless hours trying to justify this to people."

There are three main players in credit insurance - Coface, Euler Hermes and Atradius. Coface pulled cover from Brakes, while Euler Hermes reduced cover. Atradius was said to be still providing Brakes’ suppliers with insurance against goods supplied.

Other firms to rail against credit insurers include Focus DIY and Topps Tiles. Focus boss Bill Grimsey called them fair weather friends. Others complain that they withdraw cover at a time when it is most needed.

The Association of British Insurers (ABI) countered by claiming that many companies, especially those backed by private equity, fail to divulge enough details about their business.

Meanwhile, the Towergate Group, the Kent-based insurance provider, has unveiled a credit insurance scheme for small and medium sized businesses (SMEs).

The scheme from Towergate, which was founded by Sevenoaks-based Peter Cullum and has offices in Maidstone, Whitstable and Sevenoaks, comes at a time when only 20 per cent of UK businesses have trade credit insurance in place. Latest ABI figures also show that as the economy worsens, more businesses are in need of trade credit insurance policies.

Sue O’Leary managing director of Towergate Risk Solutions, Whitstable, said: "At a time when many credit insurance policies are being withdrawn from the market, Towergate is playing its part as a key supporter of local small businesses. In these unprecedented times we believe it is important to provide protection to local companies to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions."