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Update: Credit management in 2021

The lockdown has been extended again – and the end? Not really in sight. What is happening to the economy at the moment, what developments can be expected and how does this affect credit management?
Blog Post
27.01.2021, Prof. Dr. Matthias Schumann

Lockdown extended again – what does this mean for credit management?

An end to the corona lockdown is currently not in sight. Although the infection figures are currently decreasing, there is still a lot of uncertainty about mutated virus variants, so that the majority of politicians are holding back on statements about easing the current measures.

Where are we now?

There is help for small and medium-sized companies but in many cases, it has not arrived or is too little. Liquidity bottlenecks are looming here. Short-time working allowance is still being paid out. And recently the federal government decided to extend the suspension of the insolvency filing requirement until 30 April 2021.

The economics institutes report a contraction of around 5.6% for last year and the predictions for 2021 have been corrected downwards. Share prices have failed to react to all this: without really considering the possible economic prospects for the future, they continue to rise. Private individuals are suffering from a lack of social contact, minimal possibilities for holidays etc., but generally continue to receive wages and salaries.

Corona politics in an election year

At the end of September 2021 there will be a national election in Germany. With this in mind, decisions made by politicians must be considered critically: will a huge bubble be created, which will burst in the autumn at the latest?

We dare to take a look into the future:

  • When the short-time working allowance is ended, the redundancies will begin.
  • The longer lockdown will probably result in many insolvencies in the hotel and restaurant business. The same goes for the tourism industry and the fitness sector. Breweries will also be negatively affected by these developments.
  • Trade fairs will continue to be cancelled in the first half of 2021.
  • There will be many closures of retail outlets – also in town centres. Consumption will migrate to the internet. As a result, commercial real estate will also be affected.
  • At the latest in the year 2022 public authorities will have to cut spending – which will have consequences for the building industry.
  • Companies in many industries will often decide to delay large investments until there is more certainty about future developments.
  • The high level of debt – also at larger companies with a lot of bond emissions – will lead to some companies becoming takeover targets for hedge funds and investment companies. Mergers will also be driven by this.

And international business?

On 1st January 2021 the Brexit was completed. Already today, logistics service providers are reducing their transport operations to Great Britain. It also remains to be seen how the relationship with the US develops.

Critical observation is also needed in terms of the continued worldwide virus development – realistically, Germany is comparatively well placed in this respect.

All these developments will result in at least the internationally active company groups being even more dependent on the Chinese market – so dependencies will become even greater.

Credit management more important than ever

For credit managers, clear analysis is essential: what does the liquidity and the debt situation of customers and suppliers look like? What is the risk situation in the particular industry – also in terms of the political conditions in relation to the pandemic?

And finally, the pandemic country risk also plays a role as an indicator. In 2021 credit managers must certainly expect longer periods of overdue payments, a large increase in insolvencies and increasing defaults on payments. For individual companies, only tight monitoring of customers and suppliers can help in finding suitable solutions.

A company's branch affiliation is an important reference point for correctly assessing its economic situation. This is more true than ever in times of Corona: the crisis has caused a major shake-up of sector risks in some areas.

How do you recognise at an early stage whether and with which customers bad debts are to be expected?

To secure your own liquidity, it is extremely important to rely on an effective early warning system in credit management.

About the Author
Prof. Dr. Matthias Schumann

Since 1991, Prof. Dr. Matthias Schumann has held a professorship in Business Administration and Information Systems (Chair of Application Systems and E-Business) at the University of Göttingen. He also heads the joint computing center of the Faculty of Economics and the Faculty of Social Sciences. He is a shareholder of Prof. Schumann GmbH.

Prof. Schumann's research interests include information systems at financial service providers and systems for credit management, as well as issues related to knowledge and education management. Prof. Schumann has a wide range of experience in consulting companies, extensive lecturing activities and more than 350 publications.

University of Göttingen

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