Despite initial predictions, insolvency and collection actions have been at record lows since the initial Covid related lockdowns in NZ. A number of businesses have considered self-insurance vs credit insurance over this time as a result of clean ledgers and good business activity, when in fact we should be looking to the future and what is anticipated to come by way of payment issues and payment defaults.
In our current environment, we have access to credit insurance capacity and competitive premiums, in contrast to a higher claims and insolvency landscape where cover is more limited. Now is the time to consider risk transfer and take advantage of benign market conditions to future proof your business.
We are already seeing some signs of business stress by way of increased debtor days, payment plans, delayed payments and claims. Widespread supply chain issues, rising material costs, ongoing trading restrictions, rising interest rates, inflation and logistical challenges are all going to have an impact at some point as working capital and cash flows are put under pressure.
This quarter I am singling out the construction sector as an area that could be particularly affected. Builders have been particularly impacted by supply shortages, significant increases in material costs and project delays. Experts are warning of a wave of insolvencies over the coming 2-3 years, and we encourage suppliers to this sector to be prepared in advance for this (refer to linked article for more information).
Our friends over the ditch are already experiencing this with the large insolvency of Privium Group. This group failed last week owing millions of dollars to creditors while only two years ago being considered almost ‘bullet proof’. While Australia and New Zealand are not the same, our construction sectors face many of the same challenges and they are our largest trading partner. Many NZ businesses have operations in Australia or trade with buyers in Australia. To see our case study on the Privium collapse, please click HERE.
We encourage businesses to ensure they have sufficient cover in place and businesses considering credit risk transfer to get in touch to look at options to protect themselves against what is anticipated will come. Early and proactive collection action is also important to ensure best outcomes and we remind you NCI have a dedicated collections agent in Auckland to assist in this area.
Wishing you a successful and safe trading period over the next quarter as borders open and the holiday season approaches.
Kind regards,
Zara.
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