Category Credit
SUB CATEGORIES Credit Bureaus  |  Credit Insurance |  General | 

Where will the next hammer blow fall?

01 September 2014 Credit Guarantee

Equating the failure of Ellerines to a heart attack is most apt! It strikes anywhere, anytime and usually without warning – often with fatal consequences. It is very unlikely that even a soothsayer or fortune teller would have foreseen the demise of Ellerines.

Since the global meltdown, a previously unseen element has crept into the business environment – that is, the unexpected and sudden collapse of companies that were ordinarily not on the crystal ball’s dialling list. These failures, with very large commitments to creditors, happen at incredibly short notice generally catching the market unawares.

Roger Munitich, General Manager Sales and Marketing at Credit Guarantee, says, “Safeguarding against those unknown unknowns, to quote that luminary, Donald Rumsfeld, is becoming a business imperative and only a credit insurance policy will ensure that the harsh consequences of such a sudden collapse can be mitigated. For those uninsured suppliers to Ellerines, currently owed many millions, the possibility of an own heart attack is pretty strong.”

The economic landscape has been blindsided by the plethora of large corporate failures over the past year, with the demise of First Tech, Duro Pressings, Alert Steel, Look & Listen (in Business Rescue) and recently Ellerines. These have led to extensive job losses and enormous shortfalls and cashflow problems for suppliers to such entities, with the knock-on effects rippling through the various industries. The scale and pace of some of these failures, let alone the unexpected nature of many, have seen creditors left high and dry with large commitments outstanding. Against the backdrop of an underperforming economy, are businesses not at risk from further unexpected developments that could adversely affect their ability to meet obligations due to their suppliers?

“As can be seen from the graphic below, our overdue advised accounts have been increasing rapidly post the global financial crisis,” says Luke Doig, Senior Economist at Credit Guarantee. “The point to note, however, is that the good year of 2013 yielded the same result as the catastrophic year of 2009. Note, too, that the 2014 level is only for the first eight months of the year and they are in fact some 26.9% ahead of the same period last year.”

A further disconcerting trend is that of average values, impacted as they have been by large company failures mentioned above. This has proven to be a reliable indicator of future payment defaults and hints strongly at more pain on the corporate default front ahead. That is unless a miraculous turnaround can be effected in the local economy.

Doig cautions, “But this is unlikely. Pressures on real demand are unlikely to abate significantly and evidently we may need to look forward to electricity price increases of more than just the 8% plus about 4% to claw back previous costs. Quite simply, the operating environment for business will remain blighted by these factors for the foreseeable future and we would caution very strongly against suppliers not considering payment protection. Another surprise from left field cannot be ruled out.”

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