Where have all the insolvencies gone?By Shaun Purrington
Has extending credit become more of a risk than before Covid 19 gripped the economy? As a specialist credit insurance broker with a helicopter view of our insurance markets we are well placed to observe trends in credit defaults throughout the course of the pandemic both in the market at large and within our own client portfolio.
One of the more interesting trends is the lower than expected level of insolvencies compared to commentator forecasts and therefore the lower number of credit default claims we have been asked to submit to insurers on behalf of our clients. That said, we have seen payment delays, re-schedulings and liquidity challenges but not a large spike in insolvency related claims. Trends within our sample of 150 clients probably reflects the recently reported year on year insolvency data for England & Wales which shows a relatively low volume of company failures.
It’s probably not that difficult to reach a conclusion that recent Government and Central Bank actions to protect the economy have created a lifeline. After all, enhanced direct financial support for businesses, temporary restrictions on the use of Statutory Demands and certain Winding-up Petitions and reduced HMRC enforcement activity have all played a part in driving insolvencies down and far below a normalised count.
The emerging consensus view is that 2021 will be a more challenging year for businesses because of the likely end of fiscal support and recession like trading conditions both home and abroad. We predict will lead to a considerable and prolonged increase in business insolvencies. Companies who rely on the supply of trade credit terms to keep the supply chain moving will face a more difficult and uncertain set of risks which can’t be spotted easily through trade references and credit status agency reports.
Thankfully there is a solution. A debtor protection facility from your invoice finance provider protects your business from unexpected losses in the event of a buyer’s insolvency in return for a small percentage of your turnover. With insolvencies in 2021 only likely to head in one direction, reviewing debtor protection needs is a vital component of next year’s budgeting process. After all without protection, suffering a large bad debt could end up with your business being part of some very gloomy statistics.