Early risk analysis and clever strategies

When it comes to economic development, the situation in Germany and internationally remains difficult. This increases the business risk for companies and has a negative impact on payment behavior. Mark Sieber, Head of Ecclesia Credit Multinational, deals with this issue intensively on a daily basis for our clients and mandates. He and his team advise and support companies such as deas' industrial customers in effectively managing their credit risks and thus ensuring their financial stability.
 

We have analyzed the latest studies by the credit reporting agency Creditreform and the credit insurer Coface on this topic for our readers and prepared their contents in an easy-to-understand way. 
 

“The economic weakness in Germany and Europe has put many companies in a precarious situation. An expected increase in insolvencies to around 22,300, which corresponds to an increase of around 25 percent in the current year in Germany – compared to the previous year – is not only alarming, but also a clear indicator of the profound structural problems we are facing,” explains Mark Sieber of Ecclesia Credit, the group's internal specialist for trade credit financing and hedging for the Ecclesia Group's brokerage clients. Companies focusing on growth markets outside Europe face additional export risks from geopolitical shifts and trade restrictions. This requires even more targeted risk assessment and well-thought-out risk management.

Economic tensions and political uncertainty
 

The general business sentiment has deteriorated significantly. “Almost half of German companies are pessimistic about their future development, reflecting the uncertainties and challenges in the current economic climate,” emphasizes Mark Sieber. Political uncertainty, both in Germany and globally, is seen by many of our customers and also in the two studies (Coface and Creditreform) as the greatest risk for the business development of exporting companies. This shows how closely political stability and economic expectations are linked and how they influence global trade in goods and services.

Risk reduction strategies

“In uncertain times, it is essential that companies implement risk minimization strategies. Diversifying suppliers and reducing dependence on individual markets are important steps to increase the resilience of the supply chain to external shocks,” says the Ecclesia Group's credit expert. On the sales side, trade credit insurance offers protection against bad debt losses and thus provides important balance sheet protection in times of economic uncertainty and rising insolvencies. Based on transparent risk assessments, it enables companies to strengthen existing business relationships and expand into new markets with greater confidence.

Cash is King – a déjà vu!

Especially in economically uncertain times, liquidity is a company's most important asset,” says Mark Sieber. “The principle of 'cash is king', which originated in the 2008 financial crisis, is still very much relevant today. This is because an adequate liquidity position is essential to ensure the continued existence of the company, especially in times of crisis.” An extremely useful tool for companies to ‘generate cash’ is the non-recourse sale of receivables via factoring.
 

In a factoring process, companies sell their claims from the delivery of goods and services to a factoring company and receive immediate liquidity through the payment of the purchase price. Factoring thus supports them in financing their daily working capital needs, directly improves their liquidity position and contributes to a higher financial stability of companies. In addition, factoring optimizes the balance sheet structure by increasing the equity ratio, which can lead to improved ratings with banks. In addition, factoring reduces DSO – days sales outstanding, an important working capital indicator. “Factoring is therefore an extremely suitable financing instrument, which is why it has become an integral part of corporate financing,” says the expert, summing up the advantages.

Effective collaboration between Ecclesia Credit and companies
 

“Our expertise at Ecclesia Credit enables us to support companies in effectively managing their credit risks and thus ensuring their financial stability. Based on a thorough analysis of our clients' order to cash processes, we develop comprehensive, customized strategies for hedging, financing and optimizing working capital. We design the resulting hedging and financing solutions individually for and implement them together with our customers,” says Mark Sieber. “By providing close ongoing support and regularly analyzing risk portfolios, we are able to identify potential risks at an early stage and take appropriate action.”

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Details of the Coface study:

The eighth edition of the Coface study on payment experiences of companies in Germany was conducted between June and August 2024. 774 companies from more than 13 sectors participated.
 

Key findings: Payment behavior remained largely unchanged compared to 2023. 80 percent of companies offered payment terms in 2024, compared to 79 percent in 2023. The average payment term remained the lowest of the countries surveyed by Coface, at 32.1 days. 78 percent of companies reported new payment delays in 2024, higher than from 2020 to 2022 but lower than in 2019. The average payment delay increased slightly to 30.8 days, but remains below the pre-pandemic average. Overdue payments from six months to two years have increased significantly: 16 percent of companies reported that these account for 2 percent or more of their annual turnover. In 2023, only 9 percent reported this.

Details of the Creditreform study:

Creditreform economic research analyzed approximately 3.8 million invoice documents from the Creditreform Debtor Register Germany (DRD). The study focused on economic development and payment behavior in the first half of 2024.

General results: Payment behavior remained largely unchanged compared to 2023. Average payment terms increased slightly to 31.37 days. Late payments: Invoices were on average 8.80 days overdue in the first half of 2024. The outstanding debt volume was 23,600 euros per debtor. Development of the volume of receivables: The average value of an invoice paid late decreased from 2,234 euros in the first half of 2023 to 2,072 euros in the first half of 2024. There was a lower transaction volume for deliveries to the chemical and plastics industries. The reason: economic weakness in the industry.

Both studies provide valuable insights into the payment behavior of German companies in 2024. They emphasize the need for measures to minimize risk and improve payment behavior in an uncertain economic environment. Further details can be found on the Creditreform and Coface websites.