With the current faltering economy, things are looking up. Invoices are being paid later, defaults are increasing and the number of bankruptcies is higher than in the pre-corona period. Credit managers' debtor management needs to be sharp. What credit requirements do you handle? How do you scan customer stability? Focus on the customer alone is not enough. Market developments and geo-political factors must also be taken into account as a Credit Manager.
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Customer-oriented debt collection
Automation of credit management is moving fast. From invoice to collection, smart software enables far-reaching automation of payment processes. Advanced technologies, including AI and machine learning, provide predictive analytics that help companies better understand customers' payment behaviour and foresee potential payment problems.
Alongside technological advances, debtor management is increasingly focusing on customer centricity and relationship management. Companies increasingly recognise the importance of good customer relations, even when it comes to collecting outstanding bills. Customer-centric approaches (such as personalised payment reminders and flexible payment terms) help not only to get outstanding payments in faster, but also to maintain customer satisfaction and loyalty.
Key economic issues for Credit Managers
By developing credit policies, assessing creditworthiness, managing credit risks and maintaining client relationships, you will contribute to a sound financial basis for your own organisation. Monitoring customer (financial) developments cannot be separated from general economic developments. These are developments you should at least watch out for:
- Inflation & Interest rates
Inflation and interest rates are cautiously taking a step back but it is not yet very convincing. The hyper-inflation of a few years back has been fought off and in Europe we are seeing an initial decline in interest rates but both interest rates and inflation still remain on the high side and no one guarantees that the path downwards will continue. Both have substantial impact on operating costs for companies. - Geopolitical developments
In addition, geo-political turmoil remains. In the eurozone, we see the rise of eurosceptic and/or far-right parties. Political changes leading to uncertainty. Globally, protectionist measures are rising sharply. Also, supply chain disruption (after corona and 'Ukraine') has still not fully recovered. All circumstances leading to hesitation in investment and spending by companies. - Power of Europe
In the Eurozone, we see that 'locomotive' Germany hardly shows any growth. European trade policy is falling further and further behind superpowers such as the US and China (which are increasingly protectionist). European companies are getting more and more (sustainability) regulations on their plate. Costly extra efforts that come on top of existing obligations.
The cost of financing is also rising. An increasing number of companies are struggling to absorb these credit costs. This puts additional pressure on profitability. At the same time, limited financing options put the most vulnerable sectors and companies at risk. Countries where the number of vulnerable companies is high are Britain (15%), France (14%), Italy (9%) and Germany (7%).
Many unhealthy companies have been kept afloat
Due to the extensive government support during the COVID-19 period, many financially unhealthy companies were kept afloat. This has negatively impacted the health of the European economy. For example, these unhealthy companies continue to occupy the already tight labor market. Adding to this is the fact that financial markets were flooded with ultra-cheap money thanks to the ECB's asset purchase program. With 'free money,' unhealthy companies managed to stay afloat.
A backlog in bankruptcies was inevitable (Western Europe, 2022: +23%, 2023: +15%; US: 2023: +40%). No other country saw the number of business bankruptcies rise as quickly as in the Netherlands: +52% in 2023 and +39% in 2024. Sectors such as hospitality, transport, wholesale/retail, and construction are particularly vulnerable. A similar trend is observed elsewhere in Europe, although the percentages are lower. Many economists view this backlog as a healthy development.
Remarkable!
Many large companies are going bankrupt
According to interim figures from our economic research center, the number of bankruptcies this year in most advanced economies exceeds pre-pandemic levels. What stands out is the increase in the number of bankruptcies among large companies. This is a dangerous trend because a major bankruptcy can trigger a chain reaction, dragging down a whole series of smaller supplier companies. Entire ecosystems are being affected.
The conditions are challenging. Banks are hesitant to grant financing, and companies are complaining about the supply of raw materials and semi-finished products. Allianz Trade expects a cautious global recovery for 2024. World trade is expected to grow by +2.8% (in value), which is still significantly lower than the long-term average of 5%. The disruption of global shipping and increasing protectionism are particular concerns for the research department. The current, faltering economy is once again testing the resilience of companies, especially those that were already vulnerable in previous years.
The risk of non-payment has increased significantly
A clear view of accounts receivable risk is crucial for maintaining healthy cash flow, managing credit risks, controlling costs, maintaining good customer relationships, and making strategic decisions. Customers who pay late put pressure on liquidity and undermine financial planning and budgeting. If they don't pay at all, especially in large amounts, it immediately jeopardizes the financial health of the company. By effectively managing accounts receivable risk, timely measures can be taken to minimize losses.
We are here to help with that! Our mission is to protect companies worldwide and assist them in achieving success. When you have in-depth insight into your customer portfolio, you can make informed decisions with less risk. We offer efficient solutions for this, prioritizing the protection of your company and safeguarding its financial health.
Here’s how we stand by your side:
- We assess the financial health and creditworthiness of a customer
This requires a combination of resources and methods. It is an intensive process for which we offer Credit Managers powerful tools. Besides customer-specific information on payment behaviour and creditworthiness, we have extensive knowledge and expertise of companies and industries in more than 50 countries where we operate. We know the local market conditions, rules and customs and we closely follow economic developments there. - You collaborate with specialized teams
These teams focus on specific industries and regions. They consist of experts with deep knowledge of economic dynamics, competitive landscapes, and risk factors within their areas of focus. By continually conducting market research and monitoring trends, these teams can provide valuable insights and forecasts that assist in setting credit terms and managing receivables. - You utilize advanced technologies and analytical tools
Our real-time monitoring and reporting offer visibility into the credit risk of companies, industries, and regions. This enables you to respond quickly to market changes. - You can rely on a range of services for effective financial risk management
In addition to our trade credit insurance, we help companies identify and analyze potential financial risks such as market risk, credit risk, liquidity risk, operational risk, and currency risk. We also provide access to extensive resources, including country and sector reports, economic forecasts, and trade risk insights. With our AA rating (Standard & Poor's), we are a strong and reliable partner for tens of thousands of Credit Managers worldwide.
Want to learn more?
Schedule a no-obligation meeting with one of our business managers using the button below. They will be happy to discuss your challenges and how we can support you. You can also call us at: 02 790 24 15.
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