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Send  Share  RSS  Twitter  14 Oct 2010

TRADE CREDIT: Change in Economic Climate Sees Debts Being Paid


Recent Gauteng Business News

Coface South Africa’s role as a trade credit insurer dictates constant research into changes in the economic climate that could pose a risk to the industries in which its clients trade. These indicators paint a picture of how the market is reacting to various pressures and how the business climate is changing.

One of the most important indicators is Coface South Africa’s payment experience its clients have with their buyers. This is most evident in the debt collection service Coface South Africa conducts for its clients.

The attitude debtors have towards paying their outstanding balances is indicative of market conditions under which companies are currently operating.

Coface South Africa, the world’s second largets credit insurer, says before July 2008, overdue debtors approached by Coface for payment on behalf of its clients were generally co-operative and made an effort to work with the credit insurer in making payment.

In 2009, Coface South Africa saw an alarming trend developing in which debtors were unable to pay debt due to the large amounts owing and a lack of cash available. “Debtors often suggested that the solution to their bad debt problem was liquidation because they were unable to see where the money would come from,” says Garth de Klerk, CEO Coface South Africa.

In 2010 Coface South Africa has seen a change again. Debtors are honouring their debts but are doing so in smaller payments over a longer period of time.

“The most positive element of the current debt collection trend is that debtors are now able to commit to payment because they have cash available. This indicates a recovery in the trading conditions many companies find themselves in. While cash is still tight, the willingness to pay debt is an indication of better liquidity,” says de Klerk.

Another area Coface South Africa carefully monitors is the behaviour of corporate and private consumers. “From a macro-economic perspective, two of the most potent trade catalysts are the lending rate and inflation. These indicators speak directly to the availability of cash in terms of access to credit and the debt repayment burden both at a corporate and individual consumer level,” says de Klerk.

GDP growth rate and the Business Confidence Index are measurements Coface South Africa uses to determine the effect the market catalysts are having on real trade in terms of growth.

De Klerk says what is clear from these indices is that the growth catalysts such as lending rates and inflation have drastically improved since the business climate changed negatively in 2008. What is also evident is that there is a lag in the reaction of the market to these growth stimulators.

Coface South Africa has witnessed a similar scenario in business growth. The projections clients are making for year-on-year turnover is a slow recovery in 2010. Most clients projected flat turnover growth expectations from 2009 to 2010.

To-date turnover predictions for 2011 have remained flat with minimal growth predictions. Trade credit transaction projections for the 3rd quarter of 2010 were lower than expected. This reiterates the flat growth scenario because the 3rd quarter is usually a high credit trade month as companies gear up for the festive season in December.

The mixed bag of indicators for 2010 are indicative of a recovery year. Of importance is the continuation of these low turnover projection into 2011 which Coface South Africa believes will remain relatively flat as companies concentrate on productivity gains, cash flow management, careful growth and market realignment.

Coface South Africa is confident that while growth indicators may not be as resilient as initially hoped, 2011 will provide organisations with a more stable year from which to grow.

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