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This is how companies can prepare for the wave of bankruptcies
Slumps in sales, intolerant landlords, inadequate subsidies – the liquidity concerns of Austrian companies are becoming ever greater. Nobody should rely on the state or the goodwill of the banks; expert Peter Androsch advises companies to build up liquidity instead.
This is how companies can prepare for the wave of bankruptcies
“Bank loans are historically cheap due to the ECB's zero interest rate policy, but due to the uncertain environment these have to be approved first and then of course paid off,” warns Peter Androsch, managing director of the credit insurance brokerage company A.C.I.C. When faced with liquidity concerns, companies should not always immediately think of taking out new loans, as this will only make the misery worse. Especially in companies that continue to generate relatively solid sales, there is often liquidity potential lying dormant in the balance sheets, which in practice is usually given far too little attention: delivery receivables.
Liquidity potential in your own balance sheet
For SMEs, on average, more than 20 percent of the balance sheet total is accounted for by trade receivables. This makes them the largest single item on the assets side of the balance sheet. All companies that continually grant their customers payment terms therefore carry a particularly high risk of payment defaults, which must therefore be safeguarded. Conversely, in some sectors a certain amount of skill is currently required in order to obtain new cover commitments from credit insurers.
"Anyone who has taken out credit insurance can, in the second step, transfer their receivables to factoring banks on an ongoing or one-off basis and receive money in return immediately. If the customer cannot pay the receivables transferred from the company to the bank, the insurance takes over," explains Androsch. The liquidity generated by the sale of receivables can subsequently be used, among other things, to settle one's own liabilities. This shortens the balance sheet, increases the equity ratio and improves the credit rating.
“Cash is king”
A similar principle of generating liquidity can be used when purchasing goods. "As usual, companies only pay for their goods around 60 days after delivery. Nevertheless, they can take advantage of all the cash discounts and immediate payment discounts that are particularly attractive in the current low interest rate environment because a factoring bank advances the money and pays the suppliers immediately. A win-win situation for all sides," explains the expert. For companies with high inventories, inventory financing should also be considered because this can convert additional current assets into liquidity. "Cash is king. Anyone who builds up as much of it as possible now will not only find many takeover opportunities in the impending wave of consolidation, but will also actually be able to take advantage of them, because this will free up financing lines for long-term commitments," says Androsch pragmatically.