Managing risk in uncertain times
2020 was a year like no other, while uncertainty has been a familiar buzzword in recent times, businesses have experienced no greater uncertainty than that delivered by 2020.
Covid-19 quickly accelerated into a global pandemic with a catastrophic impact on health, businesses and the global trade environment. At the same time, the Brexit conundrum continued to hang heavy as negotiations for a future trading relationship ran right down to the wire, all the while with Northern Ireland in the eye of the storm.
The Free Trade Agreement provides for tariff-free bilateral trade in goods and also has provisions on issues such as security cooperation. However, little is arranged for services, which cover 80% of the UK economy and 45% of overall UK external trade. The UK also had to make some important concessions, including in relation to the Irish border. Meanwhile, changes to customs practices deliver additional challenges for exporters and importers and there will inevitably be disruption and increased bureaucracy, for example, country of origin relating to assembled goods is a significant issue. Meanwhile, Northern Ireland has remained within the EU’s single market for goods and despite a three-month grace period on full compliance with EU certification, the movement of food products from Great Britain to Northern Ireland quickly became disrupted, prompting the UK Government to set up a new dedicated team to work with food suppliers and retailers and also the NI Executive to smooth the hiatus.
The full economic implications of Brexit are perhaps somewhat overshadowed by the worsening UK Covid-19 situation. As a result, the UK economy is likely to see a relatively modest economic rebound of 6% in 2021, after a 10.9% contraction in 2020, while the Covid-19 legacy together with trade frictions is likely to lead to a sharp rise in insolvencies in the UK in 2021. Similarly, we can expect to see a rise in business failures throughout most of Europe in 2021, albeit at a more moderate rate, with those countries with the closest trading ties to the UK more likely to be at risk, for example Ireland.
The toll on businesses over the past year is clear. The recent Payment Practices Barometer by Atradius reported late payments in Ireland increased by 76% year on year, while nearly half (48%) of Irish businesses reported having to grant longer payment terms following the start of the pandemic; a third of these businesses doing so to provide short-term finance to their customers. This can be risky as the longer receivables remain unpaid, the lower the likelihood of collecting them. The Barometer found an average of 10% of the total value of receivables was written off as uncollectable after the onset of the pandemic; accounting for a significant €1 in every €10 billed.
The most astute businesses are clear that action needs to be taken now to mitigate against economic uncertainty and to position themselves robustly for the future. Businesses in both UK and Ireland report increasingly using credit management techniques to counter risk; from sourcing credit information directly from customers more frequently to focusing on customers’ ability to generate cash and cope with the unpredictable shifts of the economic environment. And for the ultimate protection of their biggest assets, credit insurance buffers firms from the detrimental impact of non-payment. The support of an experienced collections service is also a valuable tool in mitigating loss and a key strength in any order to cash process. Atradius Collections was able to collect on over €1 billion of overdue accounts for clients in 2020 and our expert domestic and global teams are accessible to both insured and uninsured clients.
These actions all form part of a robust risk management strategy which is absolutely essential in today’s climate as it has never been more important to comprehensively assess and navigate risk. Make sure you know your customer, how they are performing and communicate with them effectively so you can understand the risks they are facing. When it comes the impacts of Brexit, review your terms and conditions; are they suitable for any new potential export trading rules? Find out what resources are available to you – your local Chamber being the best place to start!
As a trade partner, Atradius supports businesses throughout every step of the journey; identifying new opportunities, managing risk, providing real-time expert intelligence into individual buyers and the macroeconomy as well as providing protection from the detrimental impact of non-payment and critically also, the unique global support of a professional and expert collections service. With the right preparation and support, businesses can equip themselves to navigate uncertainty and seize the opportunities for growth no matter what the future brings.
For more information, contact: michael.weir@atradius.com
To find out more about collecting debt from both domestic and export clients, you can download our International Debt Collection handbook and subscribe to our information updates https://atradiuscollections.com/uk/ And for a suite of free economic, payment and country reports visit www.atradius.co.uk
