Preparing for the post-pandemic catch-up effect to trade with confidence

The global economy growth is expected to remain strong in 2021 – with worldwide GDP expected to grow by +5.5% in 2021 – and in 2022, even if the recovery will be uneven. In this context, significant risks remain for companies eager to capitalise on new growth opportunities and bounce back after the pandemic. Businesses will be buoyed by the presence of excess consumer savings which will boost demand and trigger an economic catch-up effect. However, they also face a dynamic environment in which rising demand leads to rising prices, while cash flows and inventories are likely to be seriously constrained.

In order to trade with confidence, companies are advised to exercise caution, prepare to overcome these challenges and ensure they are fully protected against insolvency risk.

The pandemic has helped expose the risks and weaknesses in extended, just-in-time supply chains. Where once businesses – large and small – placed faith in lean supply models, the need for diversification and additional capacity is now widely accepted, even if it means sacrificing margin. Organisations are well advised to review their tier-one, -two and -three suppliers as a matter of urgency, so they can identify and better understand this supply chain risk. This analysis can help businesses hedge against new pandemic restrictions and future crises and act as a springboard for longer-term transformation.

If safeguarding business liquidity was a key goal for businesses during the pandemic, the recovery is all about managing cash flow to seize growth opportunities, despite almost constant increases in commodity prices. Maintaining cash flow will be particularly challenging for companies that have had revenues wiped out during the crisis and want to prepare for the removal of state assistance. The answer to this cash flow challenge is:

• To be as proactive as possible when chasing receivables,
  
• Taking steps to address non-payment the moment that an invoice becomes overdue,
  
• Sending notices of late invoices to highlight the issue and timestamping all client interactions.

As governments begin the phased withdrawal of state support, companies are well advised to prepare against insolvency risk by monitoring their trading partners for signs of financial distress. This risk category includes supply chain customers already struggling with high debt or those saddled with high interest costs. It also covers businesses with thin operating margins and those experiencing difficulty meeting their financial obligations. Many companies may have already had weakened balance sheets prior to the pandemic. Assessing the risk of new markets can be achieved by analysing region-specific macro data and creating country or sector risk maps: check our Country Risk Reports or view our Sector Risk Reports.

The global insolvency rate dropped dramatically to around 50% of 2019 levels during the pandemic, thanks to an unprecedented wave of state support, and this reduced level of risk is expected to persist in the coming months. This is positive news for businesses with their sights set on expansion, giving them greater confidence to trade and get paid during uncertain times.

But a business could have limited experience of trading in a new market or with a new client and this lack of knowledge could significantly increase risk. Ways to mitigate this include starting trade volumes small and building up, or partnering with a trade credit insurance provider that has experience of the counter-party and target market through dealings with other clients.