South Africa in a recession: Business owners respond by taking out trade credit insurance

South Africa in a recession: Business owners respond by taking out trade credit insurance

Credit Guarantee | August 21, 2017

For the first time since 2009, South Africa has slipped into a technical recession. According to Statistics South Africa, this was led by weak manufacturing and trade sectors. The economy has been noted to have contracted by 0.7% in the first quarter of 2017, after a prior 0.3% contraction in the fourth quarter of last year as reported on eNCA.

This translates to weaker corporate investments and consequentially low growth in some industries across the country.

Where businesses are concerned, the recession could see a dip in consumer spending and a reduction in profits. Unfortunately, for businesses who cannot hold through the recession, this may lead to credit impairment and bankruptcy, employee retrenchments, liquidation, business rescue and business closure.

What Is A Technical Recession?

A technical recession is when an economy suffers two consecutive quarters of negative economic performance as South Africa has recently experienced. This shrinking economic output is also referred to as negative economic growth or economic decline as the economy has “stopped” growing and instead is losing momentum.

This is never a good thing. In South Africa ’s case, it’s particularly serious because the country needs strong economic growth to:

  • Encourage investment and entrepreneurship;
  • Make inroads into unemployment;
  • Increase the living standards of South Africans; and
  • Increase revenue to meet government’s growing social welfare budget.

It is important to note that we are not in recession yet until the GDP performance over the remaining three quarters of 2017 are released. If the economy shows positive growth for these remaining three quarters, South Africa will avert a recession for the calendar year 2017.

How The Recession Is Affecting Companies In South Africa

Many businesses are facing serious financial challenges resulting from the current economic climate in South Africa. The technical recession, in addition to the recent ratings downgrade compounded with further downgrade threats, have seen many businesses face crippling financial losses and even closure.

Businesses rely on cash flow to continue running as a going concern. It follows therefore that businesses may become financially challenged if their large debtors – in whom they rely heavily for their cash flow – default on their payments. More businesses may turn to business rescue or liquidation which will render them unable to pay their debts.

If you offer credit to your client, this may leave you exposed. The volatility of SA’s economy, however, has seen businesses, increasingly recognise the benefits of trade credit insurance to protect their bottom line.

Beat The Recession With Trade Credit Insurance

If you offer payment terms to your clients, you should not underestimate the calamitous implications for your business, if major debtors default.

Salaries, office rentals and supplier payments, are just some of the financial expenses you need to ensure you can honour, should any unforeseen circumstances arise that negatively impact your cash flow.

Trade credit insurance from Credit Guarantee protects your business against the non-payment of debts. It allows you to put appropriate measures in place to insure your debtor’s book against liquidations, non-payment and business rescue scenarios. The credit insurance protects your debtor’s book ensuring that your cash flow remains, when you debtor cannot pay.

With all the economic challenges SA is facing, trade credit insurance for your business should be a necessity, rather than an option.

Secure your debtors’ books with trade credit insurance from Credit Guarantee.

Credit Guarantee is an authorised financial services provider.

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