How companies can avoid insolvency during rapid growth

Anyone experiencing rapid company growth knows it’s both an exciting and financially critical period.

Keeping an eye on all the moving parts can be a challenge at the best of times, and especially during the unpredictability of our current economic climate. Macroeconomic factors are shifting the lending landscape with inflation and rising interest rates. Small to medium-sized businesses’ access to capital is getting more expensive. Meanwhile, rapid growth and supply chain issues mean companies experience higher liquidity and credit risk than before.

As the Head of both the Sensitive Risk Unit  and  Credit Assessment for  Allianz Trade in North America, I help our clients analyze critical risks to their business. Especially since 2020, a question I keep hearing is about business liquidity and credit risk. Business owners want to know: “How can I grow and expand more safely and avoid insolvency?”

Businesses can face insolvency risk simply because they expand too quickly, whereby their working capital is not keeping pace with their respective growth. Meanwhile, bank loans must be paid on time. Businesses that have to manage everything themselves can quickly outgrow their ability to perform the proper due diligence on their clients. This blind spot can lead to a bad debt expense which leaves SMEs in an uncomfortable liquidity crunch. That’s why it’s very important to maintain visibility in your own client base, and truly understand who you’re working with.

One way companies keep their working capital flowing is with  trade credit insurance. An advantage of this approach is that it is largely favored by banks. Banks can reduce the interest rates of a loan because insurance has securitized the lending base while providing a cost savings to the company. This way, companies have access to the  necessary capital that is increasingly costly to obtain. Furthermore, with trade credit insurance banks can also make a larger pool of receivables available to lend against, thereby increasing a company’s working capital position.

Typically, companies are very good at knowing their customers and mapping their growth around local dynamics. Today, what businesses need to understand is their position in the broader market. How are they connected to their suppliers? What are the issues impacting their suppliers’ access to resources, especially in a world that’s changing daily?

Global  inflation  forecasts for 2022 are up to 7.9 %. As supply chain disruptions continue, it’s more important than ever to stay informed and have access to information that helps you see the big picture. With the right information, businesses can better anticipate and control their working capital and growth during these critical times.

Companies who have access to financial information about their clients are at an advantage and can position themselves strategically. Understanding economic data gives SMEs a better overview that allows them to anticipate events and respond to important or sudden changes.

Part of growing safely involves having access to the right kind of data that is frequently and constantly updated. This information is critical to understanding your surroundings and how to position yourself in a shifting global landscape.

Allianz Trade excels at proactively monitoring small businesses and doing due diligence. Just like with a security system, this data is constantly monitored to deliver immediate and accurate insight and advice to companies on how best to mitigate risk while growing their businesses. We are committed to ensuring your company has the best chances for growth, even in uncertain times.