Due to Germany’s ongoing energy and inflation crisis, companies are increasingly unable to pay their bills, and if the past is any guide, new data shows that Germany is set to be hit with a wave of bankruptcies in the near future.
The data comes from Atradius, one of the world’s biggest credit insurance and debt collection agencies, which is reporting a significant rise in overdue notices, which it also saw in the wake of the 2008 financial crisis. German companies are paying their bills later and later, and some are simply not paying at all.
“We are seeing an increase in overdue notifications,” said Frank Liebold, who heads the German credit insurance business at Atradius. He told Die Welt that “this increase is likely to accelerate in the coming weeks.”
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The term “overdue” in relation to these notices does not just mean that invoices were not paid on time, but also they were not paid after follow-up reminders. The accelerating reports of companies failing to pay is a strong sign that a crisis is around the corner, according to Liebold.
“It’s a leading indicator. After that, there is usually a crisis,” he said. “The last time there was this effect was in the financial crisis of 2008.”,
As Remix News has previously reported, 60 percent of Germans are living paycheck to paycheck, and input costs for businesses across the country have soared. Those companies unable to pass on costs to cash-strapped consumers are facing bankruptcy. Steel plants, beverage companies, and a range of other key industries are reeling, and there is even talk of Germany facing “deindustrialization” if it does not change course and drop resource sanctions against Russia.
Already in early September, CEO of ArcelorMittal Germany Reiner Blascheck said that “production in Germany is currently no longer competitive.” ArcelorMittal shut down two major plants in the country, and Blascheck was calling for political intervention to halt the crisis, but most politicians in Germany’s left-wing government have only told citizens they will have to prepare for a drop in their standard of living, including suggestions they wear two sweaters instead of one to stay warm at home.
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At the same time, interest rates are rising, supply chains are disrupted, and commodity prices are wildly fluctuating with the overall trend towards higher prices.
The only question now is how big the downturn will be.
Atradius provided data from an internal study to Die Welt showing how dire the situation is. For example, in the chemical industry, only 55 percent of invoices are paid on time while 39 percent are overdue. In the transport industry, nearly the same exact figures are present, with 55 percent paid on time and 38 percent overdue. The companies surveyed expect the situation to worsen.
“The companies surveyed fear that these delays in payment processes will lead to ongoing liquidity problems in the coming months,” reads the study.
According to the Die Welt report, demands on companies to meet environmental, social, and corporate governance goals are also leading to incredible pressure, as these are often extra costs imposed by outside actors that hurt companies’ bottom lines.
“The risks are getting bigger,” says Liebold, who points to other industries such as steel, paper, glass, automotive, and mechanical engineering, which are all under severe stress.
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Atradius is not the only company raising the alarm, with the credit agency Creditreform pointing to a crisis on the horizon.
“Our accounts receivable register clearly shows that payment behavior is steadily deteriorating,” says Patrik-Ludwig Hantzsch, head of economic research at Creditreform. “Regardless of whether it’s a small company, medium-sized company or a large corporation: companies of all sizes have recently made their lenders wait longer and beyond the set payment target for the receipt of money.”
“The risk of default increases from week to week.” Debt collection efforts are also growing, according to Hantzsch. “Banks have long been asking us about default risks in the coming months.”
Creditreform is predicting a sharp increase in bankruptcies, especially in the first quarter of 2023, and this could have a domino effect, as those facing a liquidity crunch often cannot pay their customers or providers, who in turn are unable to keep their business running.