2018 saw a significant increase in the number and value of credit insurance claims in South Africa year-on-year. In 2019, credit risk is expected to remain relatively unchanged with a possible slight improvement, says Paul Jooste, Director at Prestige Credit Insurance Consultants, a trade credit specialist broker.
The key to success for any business is the availability of information to make sound decisions when providing customers with credit. With indications that 2019 will be a challenging year with again unforeseen events, it is imperative that sound risk assessment and risk management practices are adopted.
“With an increase in the size and value of claims, Jooste says the time period for collecting overdue payments from debtors has increased further. Along with business rescue, payment plans are being accepted for much longer time periods than is normally deemed acceptable,” he says.
“International figures released indicate that in the last nine months, effectively starting in the last quarter of 2018 to June 2019, the number and value of claims have exceeded similar periods in 2008 and 2009, at the height of the international credit crisis. We are seeing similar trends in South Africa.”
Mr Jooste continues: “Currently risk is still on the increase. To reduce credit risk, it is important to check the prospective or current customer’s credit worthiness by first obtaining credit-related information about the company. This includes information such as the company’s payment credentials, references, treatment of employees and customers, and adherence to social and legal obligations.”
“A view of their payment record, liquidity and solvency levels are also important. In terms of capital: funding, investments, shareholder commitment and leveraged debt should also be analysed.”
“The industry in which the creditor operates is another important aspect, as well as market sensitivity, operational efficiency and expense control. One should take cognisance of the global industry outlook, which could have a significant effect on the local industry, and ultimately the company’s financial situation.”
Mr Jooste says that collateral is another key issue. This includes assets currently pledged, book sessions, guarantees, suretyships and securisation.
“Going forward, we are sensing a small increase in business optimism which, if it continues and gains momentum, will probably result in some positive spinoffs for the economy from 2020 onwards,”
PSG Wealth notes that South Africans won’t be seeing any further rate hikes in the near future, which means the cost of capital will cease to rise and interest rates could remain low.
Moody’s kept SA’s credit rating one level above sub-investment grade, with a stable oultlook. This presents an opportunity for SA to improve on its fiscal policy and align itself with an economic strategy that builds confidence and facilitates growth ahead of the next scheduled rating decision in November.
PSG Wealth adds that the relationship between South Africa’s economy and its state-owned entites (SOEs) is inseparable. As part of President Ramaphosa’s clean-up mission, these entities are currently undergoing structural changes, financial audits and, with the ousting of corrupt management, SOEs could be restored and become sustainable organisations. When the SOE monetary policies are back in shape, SA Inc will certainly bounce back.