Weak economic growth, the impact of trade disputes, political uncertainty and social tensions. Before the COVID-19 crisis these factors lay behind our prediction that we would see another rise in the number of bankruptcies in 2020, for the fourth year in a row.
And then came COVID-19 and as yet there is no improvement in sight. Certainly in the first half of 2021, we are expecting a substantial increase in the number of companies going bankrupt. According to the Euler Hermes Global Insolvency Index, bankruptcies worldwide are set to increase by 31% in 2021. Our economists forecast a 10% increase for Belgium (more than 23,000 insolvencies by 2021) and a 31% increase for the Grand Duchy of Luxembourg.
The most frequently occurring risk for companies? Late payments. Over half of companies had to deal with this issue last year. One in three companies were already dealing with insolvent customers. COVID-19 is just worsening the situation, resulting in longer payment periods all over the world.
Companies’ liquidity needs have increased across the globe. In total, the amount involved is a record USD 8,000 billion – or 10% of the world’s money supply and coronavirus is simply exacerbating things. Transport, cars, textiles and non-food retail are the sectors facing the biggest liquidity problems.
Ed Goos, CEO of Euler Hermes BeLux:
B2B payment arrears, measured on the basis of the DSO (Days of Sales Outstanding), will increase by two days to an average of 66 days worldwide in 2020 and by another two days to 68 days in 2021 - the highest level in ten years. These forecasts leave no doubt of the need for extra vigilance in credit management.
Although a great many companies say they are prepared for defaulters and late payments, fear of a snowball effect remains widespread. Non-payment and bankruptcies have often set off a chain reaction in motion in the past. No one is safe from this, not even big companies. So it is sensible to arm yourself well against such risks - now more than ever.
A Euler Hermes survey conducted among over 1,000 CFOs (The Finance Leader of Tomorrow 2020 survey) shows that they deal with this risk mainly in three different ways: planning, diversification and the necessary insurance solutions. Their insights can also help keep other (and smaller) businesses successfully out of the danger zone of non-payment and bankruptcies.