Financial swamp threatens, don't fall for the coronaval

It's great that vaccines are on the way. Yet I feel called to warn you. Where until recently companies had solid ground under their feet, they can now end up in a swamp. Customers and suppliers who steady as a rock laymen may now look quite different.

You cannot see from the outside how the corona crisis and the lockdowns are turning out per company. In a short period of time, financial health has been severely affected. That requires alertness. Don't assume old certainties, but be healthy mistrust and take a critical look at your relationships. Due to the emergency shutdown of the global economy at the beginning of this year, the specter of payment arrears and sudden bankruptcies has returned.

The coronavirus and its consequences have affected the cash flow of many companies. And that only goes further. The crisis is far from over: the pandemic is not yet under control. The effect is wider than you think. It is not only the sectors that are mentioned again and again (transport, catering, entertainment, and so on). We see in our figures that cash flow problems, payment arrears and bad debts are increasing.

Not only smaller companies vulnerable
And also important: not only the smaller companies are vulnerable, also the largest. You think you are doing business with a 'giant' and you feel safe, but it is precisely in that corner that you also get hit hard. For years there has been a trend that more and more large companies worldwide are collapsing. And that trend has only intensified.

Although there were some clouds in the sky at the beginning of this year, in fact world trade was still running at full speed. To then get a bang of -13%. From 'nothingness'. The unexpected, very brutal fall in turnover has affected the solvency of many companies.

There is also a domino effect: company A has to deal with invoices that are paid late, so that it suddenly finds itself in cash problems to pay the invoices of company B. A problem that is spreading like an underground heath fire. Entire value chains suddenly jeopardized by the default of one company.

4 tips for protection
The question is, how can you protect your business? It is good to keep 4 things in mind:
1. Efficient risk management policies are needed to avoid worst-case scenarios
2. Keep a close eye on your cash flow position
3. Be wary: check your customer's creditworthiness (even if you've been working together for years).
4. Prepare to deal with payment arrears: invest in efficient payment monitoring. Good credit management offers you protection against default and sudden bankruptcies.

Thanks to government support, the damage remained somewhat limited in 2020. We foresee a high-risk year for 2021. Support packages are going to fade and we expect a record number of bankruptcies. Protect your cash flow and your future growth.

Johan Geroms

Johan Geeroms is Risk Director at Euler Hermes, the world market leader in credit insurance and corporate debt collection. In his blogs, Geeroms often focuses on developments in the agricultural sector.

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