Demand for trade credit insurance rises as uncertain trading conditions prevail in South Africa
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GUEST – Gareth Joubert -Managing Director for Hollard Trade Credit Number:
Many South African businesses and in particular small and medium enterprises (SMEs) currently find themselves in a vulnerable position, as economic pressures and tough trading conditions continue to impact companies’ ability to stay afloat. Given the highly uncertain operating environment, the demand for trade credit insurance has never been stronger, with businesses increasingly looking for cover to protect themselves from risks involving trade debts.
According to data released by Stats SA at the beginning of this year, company liquidations have surged at the end of 2022, rising 18.3% month-on-month and 30.3% year on year. The rise in insolvencies can be attributed to load shedding, higher interest rates, low growth and high inflation, which make for a difficult trading environment and create financial distress that continues to have an impact on businesses not being able to generate sustainable revenue.
Considering the increasingly challenging business environment in South Africa and therefore the extreme risk that smaller businesses can potentially face when debtors fail to pay due to circumstances beyond their control, trade credit insurance cover should be a top priority for all small and medium companies.
In 2020, retail giant Edcon was placed under business rescue, owing about R3.7 billion to more than 80 entities, with at least 10 former suppliers approaching the high court in Pretoria for permission to litigate against Edcon, to improve their low payout. It was reported at the time that some creditors were to receive as little as four cents for every rand they were owed under the business rescue plan.
Many South African businesses and in particular small and medium enterprises (SMEs) currently find themselves in a vulnerable position, as economic pressures and tough trading conditions continue to impact companies’ ability to stay afloat. Given the highly uncertain operating environment, the demand for trade credit insurance has never been stronger, with businesses increasingly looking for cover to protect themselves from risks involving trade debts.
According to data released by Stats SA at the beginning of this year, company liquidations have surged at the end of 2022, rising 18.3% month-on-month and 30.3% year on year. The rise in insolvencies can be attributed to load shedding, higher interest rates, low growth and high inflation, which make for a difficult trading environment and create financial distress that continues to have an impact on businesses not being able to generate sustainable revenue.
Considering the increasingly challenging business environment in South Africa and therefore the extreme risk that smaller businesses can potentially face when debtors fail to pay due to circumstances beyond their control, trade credit insurance cover should be a top priority for all small and medium companies.
In 2020, retail giant Edcon was placed under business rescue, owing about R3.7 billion to more than 80 entities, with at least 10 former suppliers approaching the high court in Pretoria for permission to litigate against Edcon, to improve their low payout. It was reported at the time that some creditors were to receive as little as four cents for every rand they were owed under the business rescue plan.
