ECONOMY: Rising Trend In Defaults
Recent Western Cape Business News
CREDIT insurer Coface estimates that over the past 12 months a substantial number of companies would have had cash flow problems had they not had credit insurance cover.
“The financial crisis has affected companies regardless of size and industry. In our experience, the main business sector affected by the financial crisis have been businesses with a turnover of between R20 million to R30 million per annum. Claims received have been mainly in the construction, freight and steel sectors,” says Coface senior manager new business, Michele Ferreira.
Ferreira says official statistics show that the total number of liquidations for the first four months of 2009 increased by 45.3% compared with the same period in 2008. Voluntary liquidations are up by 48.2% whilst compulsory company liquidations are up 22.4% over the same period.
“When comparing the first four months of 2009 against the comparative period in 2008, there were increases of 54.6% in company liquidations and 37.8% in close corporation liquidations,” she says.
“The pharmaceutical sector has experienced the least impact of the credit crisis which is due to strict government regulation, while the construction industry is one of the worst hit.”
“In addition to insuring buyers against default, credit insurance provides companies with another benefit,” says Ferreira. “To qualify for credit insurance, their customers must have stringent credit management systems in place. It is a misconception that once an organisation has credit insurance that their credit control responsibilities become those of their credit insurer.”
By having these controls and procedures in place ensures that the organisation, along with their credit insurer, has assessed the buyer correctly and has strong risk management processes in place. In terms of credit control, there are various pre-requisites that Coface requires before granting a credit insurance policy. The client must have clear procedures to flag outstanding buyers, pre-set litigation procedures, and their accounting systems must be computerised.
“If Coface turns down a credit application on a buyer, it gives a clear indication that the buyer is a higher risk and the supplier should be careful in granting credit on their own,” she says.
“Suppliers need to be aware that the risk of buyer defaults is currently the highest they have been in the last 20 years.”
Business News Sector Tags:
Fax 2 Email
Study IT Online
Work from Home