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Article | Trade Credit News

GB Trade Credit News: Q1 2021

Credit, Political Risk and Terrorism
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By Martin Vickers | May 27, 2021

Below is the latest Trade Credit news for Great Britain.

In this edition

  • Supply chain finance in the spotlight
  • Atradius predict a 26% increase in global insolvencies
  • Nexus CIFS review the food and drink sector
  • Begbies Traynor report an increase in companies in significant financial distress

Supply chain finance in the spotlight

Supply chain finance is where a Financier provides early payment of invoices to suppliers on behalf of a single “buyer” company, based on the buyer’s credit rating. It is also known as reverse factoring or “payables financing” whereas factoring or receivable financing will traditionally fund the supplier’s sales to all buyers. The Financier in Supply Chain Finance (reverse factoring or payables financing), will invite the suppliers to join a scheme they have set up for that single buyer. The Financier will often take out credit insurance to protect against the non-payment by the buyer, a single concentrated credit risk compared to the multiple counterparties insured under the usual receivable financing or factoring programmes.

Although Greensill’s collapse may have been triggered by the non-renewal of the credit insurance policy, we believe much of this unsecured funding would therefore have fallen outside any normal credit insurance policy which limits coverage to actual invoiced trade.

In an article for the Berne Union, Igor Zaks examines the lessons from the collapse of Supply Chain Finance Company, Greensill Capital. It has been reported that in the case of Greensill some of the financing provided was unsecured by actual sale invoices and was not therefore receivable or supply chain finance that ordinarily could have been credit insured. The insolvency of Greensill has left their backers facing large losses.

Despite the fact that the need for greater transparency and disclosure has been highlighted, Igor Zaks remains confident that credit insurers and financial institutions such as banks continue to have opportunities to grow the Supply Chain Finance market, a view which is echoed by Willis Towers Watson in our recent White Paper ‘Are Trade Credit Insurers still Open for business?’.

Read more on this update

Atradius predict a 26% increase in global insolvencies

Atradius have published a paper in which they examine the likely trend in insolvencies in 2021. Despite the sharp decline in GDP in 2020, insolvencies worldwide fell by 14% due to Government support measures and changes in the insolvency laws. As these measures are phased out Global insolvencies are forecast to increase by 26% in 2021.

In the UK there was a deep recession in 2020 due to the strict lockdown and Brexit uncertainty. Atradius predict that the UK will regain half these losses in 2021 following a trade agreement with the EU, successful vaccination program and expected end to lockdown.

Read more on this update

Nexus CIFS review the Food and Drink sector

Nexus CIFS Underwriter Victoria Bond has carried out a review of the impact of COVID-19 and Brexit on the Food and Drinks sector. While the supermarkets and companies selling on-line have seen massive growth the hospitality and foodservice sectors have been badly hit.

Encouragingly, when the first lockdown was lifted, the hospitality sector bounced back well but many companies will be suffering from high debts and a lack of liquidity.

Brexit has caused delays in the container ports, increased costs, additional customs requirements and a reduction in the migrant workforce.

Nexus CIFS expect insolvencies to increase significantly next year and will rely on obtaining up to date financial information on buyers going forward. 

Read more on this update

Begbies Traynor report an increase in companies experiencing significant financial distress

Insolvency Practitioners and business turnaround experts Begbies Traynor have reported a dramatic increase in companies in ‘Significant financial distress’. In their latest ‘Red Flag Alert’ research, they reported a 93,000 increase in companies in significant financial distress. Specifically, Q4 2020 to Q1 2021 saw a total of 723,000 companies in financial distress , which is a 15% rise.

All 22 sectors analysed saw an increase with the worst effected being transport, real estate, financial services and construction.

Julie Palmer, a partner at Begbies Traynor said ‘The dam of zombie businesses could be about to break. Opening the doors of consumer-facing businesses on April 12 may well seem like a big step in the right direction for many of these companies as they try to shake off the traumatic trading of the last 12 months. However, our experience shows that unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses. Businesses that were profitable before the pandemic, have manageable debt and are still relevant in the post-pandemic world could flourish and be the real winners in this climate. They need guidance and need to act quickly. In a market that is moving fast, dithering companies will be swept away in the sheer force of distress that is forcing its way across the UK."

Read more on this update

Major insolvencies in February, March & April

  1. Kidiliz Group UK Ltd – Clothing retailers
  2. Tucan Ltd - Travel Agents
  3. Prezzo Ltd - Restaurant Operators
  4. IRAF UK Dragon Ltd – Preston Shopping Centre Owners 
  5. Simplicity Energy Ltd – Energy Company
  6. Green Network Energy Ltd – Energy company
  7. Betindex Ltd – Football Gambling index
  8. Greensill Capital (UK) Ltd – Finance company
  9. Earth Spa Ltd – Health activities company
  10. Emerald Global Ltd – Travel Agents
  11. Jessops Europe Ltd – Retailer of photographic equipment.

Insolvencies decrease/increase during Q1 2021

There were 2,384 (seasonally adjusted) company insolvencies in England and Wales during the first quarter of 2021. This was an increase of 22% from the previous quarter and a decrease of 38% compared to the same period last year. Overall number remain low compared with pre-pandemic levels and this is likely to be due, in part to Government measures put in place in response to COVID-19.

See the the latest figures in detail

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