The global economy may be building back its strength, but for multinational companies, risk remains. In some instances, it is more pervasive than before the economic downturn.
Trade credit insurance firm Atradius recently collaborated on a report of the state of risk management in today’s business environment. The analysis, published with Director, sheds light on how late B2B payments and insolvencies are still haunting corporations, despite economic improvement.
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“Despite the good news that the economy is rebounding, we cannot forget that we are still operating in the shadow of recession,” said Atradius Commercial Director Jason Curtis for the report.
The company, which provides insurance for trade credit, as well as collection services, pointed to the rise in insolvencies in today’s market. According to Atradius, failure to repay debts is actually 75 percent higher than it was pre-global financial crisis. Meanwhile, the latest figures from the Atradius payment practices barometer found that, in the U.K., 41 percent of B2B invoices are past due; 1.2 percent are never paid.
Perhaps more troubling, the report stated, is that there are new risk factors for multinational companies that have only emerged amid global economic recovery. Regulatory sanctions have wiped Russia off of the list of markets with which firms can do business, for instance. Ongoing political turmoil and terrorist operations in the Middle East have also heightened the risk factor for global companies.
Breaking Risk Down By Industry
In an effort to tackle the multitude of risk factors present in the globe today, Atradius took its analysis industry by industry.
In the oil and gas sector, price per barrel hit remarkably low levels last year (less than $50, according to reports). Alternative energy development, combined with geopolitical events like war and terrorist attacks, are all straining this industry. Atradius anticipates low oil prices to stick around, and experts highlight that the sector, with its complex and elongated supply chain, will see implications from market volatility that reverberate through that chain and all of its players.
As a result, according to the Association of Chartered Certified Accountants, players in the oil industry are placing items like funding, capital expenditure, corporate reporting regulations and the development of more dependable analytics and forecasting abilities at the top of their priority lists.
Within the food market, analysts pointed to the pressure top grocery players place on their suppliers and the rest of the supply chain to reduce costs as a particularly prevalent phenomenon in today’s market.
Commodities are consistently faced with price volatility, analysts concluded, and are especially sensitive to political events. This means corporations like food firms, which depend on those commodities, must mitigate this flux. To do so, U.K. grocery giants, like Tesco and Sainsbury’s, are promoting their name brand, lower-priced items over comparable brand name counterparts.
“This will inevitably lead to an increasingly competitive outlook for suppliers during tender processes,” said Atradius Risk Services Senior Underwriter Darran Tilke.
Finally, in the information and communications technology (ICT) market, one of the biggest sources of risk is the balance between public contracts and private business. To remain competitive, Atradius found that these businesses are looking towards supplier relationships and payment terms to mitigate risk, though this could lead to greater problems down the road.
“What was typically 60-days credit a couple of years ago is drifting out to 90 days,” the report said. “That doesn’t look good, especially when there often aren’t a lot of fixed assets, such as freehold property or plant and machinery, to beef up the balance sheet.” Analysts added that a talent and skills shortage is also placing pressures on the ICT sector.
Each industry has its own sources of risk and volatility, but according to Atradius U.K. Operational Manager for New Business Richard Reynolds, there are steps corporations can take, regardless of the market in which they operate.
Conducting full credit checks on potential new business partners and buyers is key, Reynolds said. “This will enable you to decide whether you can do business with them on credit,” he explained, adding that companies must be clear as to what they are offering new customers. “Nearly one in five invoices go unpaid because the customer disputes the quality of the service or goods.”
Tracking down late and non-payment as quickly as possible is also key, analysts concluded. Even for companies that have longstanding business relationships with their corporate buyers, businesses must keep an eye on accounts receivable flow.
“Stay alert for new risks, even in trusted trading partnerships,” Reynolds added, advising businesses to be aware of consistent late payments, frequent bank changes and maxing out credit lines as red flags from a business partner that could make today’s already challenging, risky marketplace an insufferable one.