Thomas Cook, Gerry Weber, Germania, Senvion… the year that recently came to an end was notable for large insolvency cases. According to the credit insurance company Euler Hermes in the first nine months of 2019 alone 27 companies with a turnover of more than 50 million euros registered insolvency. This represents an increase of 42 percent compared with the same period of the previous year.
If you also look at the average extent of damages of all insolvent large companies (339 million euros, 81 percent more than for the insolvent large companies of the previous year), the consequences of these insolvencies become clear. Business partners and creditors are directly affected: the extent of defaults can be immense and not everyone has a sufficient buffer to be able to cope with them. Companies can quickly get into payment problems themselves.
How can companies find out early enough when and which companies are likely to default on payments? To secure ones own ability to pay in volatile times such as these it is of paramount importance to have comprehensive and reliable risk management for the minimization of default risks.
Help can be provided by the implementation of an intelligent early-warning system in credit management, which takes over the continuous monitoring of existing customers. On the basis of static and heuristic methods as well as extensive data analyses a modern system signals at an early stage when a customer or a supplier is threatened with bankruptcy – so that measures can be implemented immediately. As indicators, very individual criteria can (and must) be considered. Examples include internal payment records, repeated switching from early payment discounts to payment at the last minute and changes in creditworthiness. Through permanent screening even creeping processes and gradual deteriorations can be identified, which are often missed when checks are only made on fixed dates.
As the numerous examples from the previous year show, neither well-known brands nor long-standing market players are immune from economic breakdown. Even when your customer base includes well-known companies, you should have a reliable early-warning system for the identification of credit risks.
In our white paper you can find out more about the design of early- warning systems for the minimization of default risks: