Insolvencies: Deep concern among Central and Eastern European companies

Atradius payment morale barometer: 60 per cent of companies surveyed expect an increase in insolvencies
Significant growth in the credit insurance business

The persistently weak economy in Europe, high inflation and the war between Ukraine and Russia are leaving their mark on Central and Eastern European companies. "60 per cent of companies assume that the ongoing economic burden will lead to an increase in insolvencies over the next twelve months," says Thomas Langen, Senior Regional Director Germany, Central and Eastern Europe at the international credit insurer Atradius. This is the result of the latest Atradius Payment Barometer for Eastern Europe (Central and Eastern Europe, CEE). More than 1,700 domestic and foreign suppliers from Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia and Turkey were surveyed.

While three out of five CEE companies specifically expect an increase in insolvencies among their B2B customers in the coming months, almost 33 per cent anticipate short and long-term challenges that will shape the entire business environment. This explains why ten per cent more CEE companies than last year are focusing on strategic credit risk management to safeguard their financial position. However, the Atradius Payment Practices Barometer also shows that companies in Eastern Europe consider themselves to be generally resilient and adaptable when it comes to coping with the difficult economic environment.

Financial challenges on the rise.

The fear of rising insolvencies reflects a trend across Europe, as the same number of Western European companies share these fears. ‘The expectation of an increased risk of insolvency, which may have an impact on business, underlines the financial challenges that companies must expect in the coming months,’ emphasises Thomas Langen. As a result of this development, companies are focussing on improving credit risk management in order to support growth, improve cash flow and protect profitability - despite the ongoing economic pressure on the business.

This is also evident in the development of the credit insurance business: the number of companies in Eastern Europe that have opted for credit insurance rather than self-insurance has risen by ten per cent in the past twelve months. 56 per cent of companies that have insured B2B receivables stated that this helps them to reduce bad debt reserves and free up working capital that can be used for operations and investments. Investment is usually the area most affected by the impact of bad debt on the organisation. This is now perceived as a burden by more than one in three companies in the CEE region.

Adaptability more in demand than ever.

Such a proactive approach to improved credit risk management, including the increased use of factoring and letters of credit (a contract with a bank that guarantees that a buyer will pay a seller on time and in the right amount), demonstrates the resilience and adaptability of CEE companies in the current difficult economic environment. As a result, 34 per cent of the suppliers surveyed are optimistic about the payment behaviour of their B2B customers in the coming year. Thomas Langen: "The strategic shift towards improved credit management helps companies to minimise the increased risk of late payments and bad debts. This improves companies‘ payment behaviour, even in the face of a potential increase in insolvencies, which primarily affect financially weaker companies."

However, the Atradius Payment Practices Barometer for Eastern Europe also shows the concerns of companies with regard to short and medium-term challenges. Almost 33 per cent of companies in the region are concerned about the impact of economic conditions on business activity and investment. These concerns are compounded by several critical factors that are shaping the overall business environment and require strategic adjustments and robust risk management practices. "With real GDP growth expected to reach three per cent in the region and inflation moderating to the five per cent target by the end of the year, Central and Eastern European economies are poised to gain momentum, albeit at different paces," explains Thomas Langen.