In 2021, many companies have struggled to stay afloat and only the intervention of the Government and central banks has helped prevent a sudden surge in business insolvencies.
As all the economic support phases out, we will undoubtedly see the start of a Darwinian process for most companies.
The crisis is changing many habits, consumer behaviours, supply chains.
If companies restart afresh, they will have to behave almost like start-ups, with the financial risks typical of a new comer.
According to our Risk expert Michael Hart, “Companies are at a high risk of insolvency in their first year of trading”.
The Covid-19 pandemic has caused a high number of companies to see almost total declines in their turnover and with having no revenue at all in some cases. As we exit the recessionary environment caused by the Pandemic, there will be significant risk to companies, due to the fact that the temporary business support measures designed to prevent a liquidity crisis has unwound. This is due to the risk embedded in the Working Capital Cycle and in particular, when companies seek to expand their turnover.
Michael Hart
Risk expert Allianz Trade UK and Ireland
What before was considered business as usual, could now be much more challenging. Businesses are now going to be working with much tighter financing, potentially on more restrictive terms.
We expect an increase in the level of corporate insolvencies in 2022. Not all sectors will recover equally. Not all businesses will be able to repay the debts they have accumulated, and it might be difficult to recognise a zombie company .
In this context, our risk prevention role, helping our clients back the winners and stay clear of the bad payers, will be as crucial as ever.