The insolvency of customers and partners is causing more and more anxiety and concern for businesses today. Corporate debt during Pandemic has already been identified as a priority for business main challenge today - despite exceptional support for SMEs in Europe, insolvency of companies are growing rapidly. Payments from foreign partners are estimated to be delayed by an average of 3-6 months today, and projections for global business indebtedness range from 15% to 30%, depending on the industry they operate. Lithuanian companies already felt the first signals during the first pandemic, and today's stalled settlements not only domestically but also with foreign partners have already become clear evidence that without protecting their business today, it may be too late tomorrow.
Information about the supposedly improving economic conditions of corporate sector, have been dispelled by the statistics of today's European countries. For instance, Germany, which has so far been more successful in dealing with the pandemic crisis than most other European nations, insolvency is projected to rise by more than 35% by the first quarter of next year. In France, debt is growing at the fastest rate, with about half of small and medium-sized businesses in France and Italy worried about insolvency.
The situation within the Lithuania is also more than obvious - today 342 million Euros support for companies affected by the pandemic still supports the viability of businesses, but bankruptcies are expected to increase after this period. Forecasts for insolvent companies in Lithuania currently range from 12 to 30 percent, depending on the sector. The most difficult situation today in catering and tourism institutions, increased risk of late payment is also recorded in the construction, transport, trade and services sectors.
The situation is supported by the fact that Lithuanian companies sell a record number of export goods to foreign partners - if just part of these partners went bankrupt, Lithuanian business would not recover any funds. Businesses today are much more dependent on mutual indebtedness than on bank financing - given that the pandemic continues and external and domestic demand remain subdued, it is clear that companies will continue to use retained earnings to survive without going into debt to manage their finances. This in itself predicts that corporate finances will be at stake during post pandemic world in the event of breaking chains in the mutual payment settlements.
At present, business-to-business settlements are heavily disrupted, companies are growing debts burden will sooner or later still have to be repaid, so it is naive to expect companies to continue to be rescued by more flexible cooperation or the gentlemen's agreement. More than half of Lithuanian companies today "tolerate" longer payment terms in order to maintain good or positive relationships with customers to avoid bankruptcy, the situation seems even more serious. Business leaders who realistically assess the situation and forecast the company’s financial capabilities must now capture changes and act proactively in preparation for a wave of insolvency and bankruptcies.
This is especially important when working with foreign partners, where the debt collection process is much longer, more complicated and more expensive when using the services of third parties - lawyers, bailiffs and other intermediaries. When working with foreign markets and seeking to recover debts, businesses today face a lack of adequate measures - often the cost of recovery is higher than the debt itself, although statistics show that just re-informing a debtor in a foreign country by its mother tongue, even up to 80% debts can be recovered with involving recovery company.
Businesses looking for alternatives and avoiding costly debt collection processes today are aided by the world's rapidly evolving digital debt collection solutions. Such debt collection is already common practice in the UK, Germany and the Netherlands, enabling businesses to inform debtors quickly and efficiently in compliance with all laws an requirements. The technologies of the online auction process allow you to get the most flexible price and rely on the help of foreign partners around the world.
The effectiveness of these solutions has already been tested by the Lithuanian market - the UK-based international debt collection platform Inform Debtor, which uses innovative fintech solutions, increased the number of new users by more than 30% in the first month of quarantine, 25% in the second month and business debt has already saved more than € 24.5 million for the recovery process.
There is no place in the world where business can feel safe. As tensions rise, companies will find it much harder to withstand the second wave of coronavirus, so the biggest challenges are right here. Businesses today have every opportunity to respond to alerts, manage risks and use the most innovative solutions to preserve their operations and manage cash flows in a professional and adequate manner. This would increase the resilience of businesses to crises and make it easier to meet economic challenges. The only question is, will we seize the opportunities and learn the lessons of the pandemic in time?
The comment was prepared by Dovydas Varkulevicius, CEO of the international debt management platform Inform Debtor.
