Retail groups are asking the Trump administration to create a backstop for insurance that retailers and suppliers use to protect inventory purchases made on credit, a move the industry organizations say would prevent more supply chain headaches going into the key holiday shopping season.

Organizations including the American Apparel and Footwear Association, or AAFA, and the National Retail Federation, or NRF, have sent letters to U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell over the past month, asking the federal government to create a temporary backstop for trade credit insurance. Brands that make a range of consumer goods often purchase coverage for sales made to retailers on credit in case the store operators go bankrupt or are otherwise unable to pay.

But store closures earlier this spring interrupted retailer cash flows, which has in turn made them appear riskier to trade credit insurers. As a result, many will now only cover a fraction of an inventory order, if they do at all, the industry groups say.

"Credit is the next big thing that we have to fix" for retailers and suppliers to stabilize after this spring's shutdowns, Steve Lamar, AAFA president and CEO, said in an interview. "We can't do business with this credit uncertainty."

That could prove problematic if not addressed in the coming weeks: Many retailers finalize their orders for the holiday season during the summer so brands and manufacturers have time to make and ship the products. "The inventories need to be built between now and Christmas," David French, senior vice president of government relations at the NRF, said in an interview.

A U.S. government-backed program would follow similar action by European governments earlier this year. Under those programs, insurers that offer trade credit coverage, such as Euler Hermes Group SA, Coface SA and Atradius NV, can have their trade credit policies backed by governments in Germany, France, the UK and other governments through a reinsurance program.

The Trump administration and industry groups are considering multiple structures for a backstop, including some that use preexisting financial vehicles not directly related to insurance. Under one idea, the government would shoulder some of the perceived risk of covering transactions using credit default swaps, according to one source familiar with the discussions. Another source said the retail groups view a program implemented under the existing powers of the Federal Reserve or the Treasury as more likely — and speedier — than action by Congress.

Representatives for the Treasury and the Federal Reserve did not immediately respond to requests for comment.

Trade credit insurance covers about $400 billion of credit lines in the U.S. annually, Scott Ettien, global trade credit head at Willis Towers Watson PLC, said in an interview. While retailers have been the most vocal industry about asking for support, that total includes transactions spanning sectors from energy to pharmaceuticals, he added.

While the coverage is little-noticed in economic booms, it becomes important during economic downturns and credit crunches: Claims under trade credit policies spiked during the last financial crisis in 2008 and 2009 as many companies could not pay their bills and became insolvent.

Supply chains for apparel, accessories and related goods are at particular risk if the coverage goes away, said Karen Giberson, President and CEO of the Accessories Council. Retailers that were already facing challenges to their business model before the pandemic, including department stores like Macy's Inc., could face a crunch if credit coverage remains sparse, she said.

Manufacturers that produce private-label goods for retailers also rely on credit insurance since their goods are made-to-order — and use a name owned by a specific retailer — making them impossible to sell elsewhere if a contract falls through or a retailer goes belly-up. "The stakes are quite high," Giberson said.

Existing federal lending programs prompted by the pandemic, such as the Paycheck Protection Program and the Main Street Lending Program, are designed to address long-term liquidity issues, 21 trade groups wrote in the most recent letter asking for federal intervention July 1. But the contraction of credit insurance presents a short-term problem that could balloon in scope, they wrote.

Without insurance coverage, companies are less willing to take on routine risks of doing business, they said, adding that the problem could mushroom to touch "every contract and supplier transaction for the next 12 to 18 months" if left unchecked.

"It's going to be horrible if you look forward two quarters," Ettien of Willis Towers Watson said. "We're gonna need support on getting those credit lines robust enough."