Can business keep pace with economic growth?

The rapid growth in domestic economic activity over the past few years may have left some companies with less than adequate controls to oversee and manage their burgeoning order books.

The cumulative impact of the last three years of average annual GDP growth of 5% has meant that many businesses have grown by more than a third in nominal terms.  But has their capacity to handle such business kept pace? Are firms capable of vetting every order to the same extent as previously - be it in terms of assessing their intent to actually purchase the goods ordered or by way of ensuring that all other contractual terms are adhered to, especially payment?

Luke Doig, Senior Economist at Credit Guarantee, comments, "The current upbeat climate has engendered many with a spirit of bon homie to the extent that either they do not have the wherewithal to conduct all the necessary ongoing due diligence associated with any deal or they believe that risks of non-performance have disappeared.  Unfortunately, this mindset - considering the fact that the economy may be walking a tightrope with regard to becoming overheated - may ultimately place businesses at risk of failure."

"We haven't even begun to consider the likely impacts of another interest rate hike on the cost of working capital, let alone what may happen to one's market if consumers are forced to adjust their spending patterns. The cycle needs to be managed to ensure that any possible hiccups are avoided," concludes Doig.