Challenges for Credit Management in 2024

We are heading for economically difficult times. During the corona pandemic many insolvencies were avoided through state intervention but now they are slowly catching up. With more than 18,000 insolvencies in 2023, a significant increase is to be expected in 2024. Prognoses point towards up to 24,000 insolvencies, triggered by current economic data and political decisions.

The increasing costs for gas and electricity are having a considerable effect on consumer behaviour. Especially the hotel and restaurant sector, which is affected by the reinstatement of a higher VAT rate, is likely to lose many companies. Energy intensive industries are also faced with the challenge of passing on price increases to their customers.

Retailing, including clothes shops and department store chains, will remain under pressure. In the automotive industry, sales of expensive German electric vehicles continue to be disappointing. The building industry, which is currently profiting from a backlog of existing orders, will also experience a slump, especially if real estate companies stop projects or become insolvent.

The development of "green" businesses, such as companies in the areas of wind power and photovoltaics, remains unclear, especially in light of reduced state subsidies and the challenges of international competition.

The German mechanical engineering industry is already suffering from a decline in demand, especially from Asia. This trend is expected to continue. In the hospital sector, profitability is achievable in the medium term, mainly through mergers and economies of scale, even though there are ethical issues here.

Not every industry is currently faced with challenges. The tourism, health and wellness sectors as well as pharmaceutical companies can be expected to remain stable. Many companies plan to compensate for the threatening lack of specialist staff through further digitalization, which is good for the IT industry. In the crafts and building trades, a solution is mainly expected through immigration and adaptations to the legal framework.

The increasing world population promises stable markets for agricultural products as well as for global food producers and manufacturers of food additives. Because of global conflicts and threatening situations, the defence industry is likely to experience increased demand.

Sanctions lists are gaining in importance worldwide. The Supply Chain Act is being extended to a larger number of companies, which makes additional measures necessary, especially in terms of digital support. The EU Corporate Sustainability Reporting Directive plans to intensify the requirements insofar as it demands checking of the entire upstream and downstream value-creation chain. This extension could result in additional pressure on the affected companies, and the question should be asked as to whether European companies will be able to cope with it. It is also important to consider whether this draft legislation gives enough consideration to global differences in culture and values, which are also affected.

The European Union decision on the use of SCHUFA data primarily affects the area of private customers. It is unclear to what extent this decision will really cause significant changes. People with a positive credit evaluation score who consequently are awarded credit, especially for purchases made on account, should not be negatively affected by this. It should, however, be pointed out that the credit score is usually only one of multiple criteria used for customer evaluation. When allocating credit further factors are normally taken into account and a statement of income and expenses is prepared in order to evaluate the ability to repay. Young companies that have built up their business model exclusively on the basis of such scoring systems could face challenges due to this decision, especially in the areas of rental and leasing. In online business it is usual to initially require payment with order from new customers before offering them the option to make purchases on account after some business has been conducted successfully. Poor evaluations could result in payment by invoice not being offered.

The coming year 2024 promises to bring with it diverse challenges for credit management. It will be of decisive importance to remain alert, both in the monitoring of liquidity of business partners and in the organization of evaluation processes. In these challenging times I wish all those involved great success.