RACA Journal : ISSN 1812-772X

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While most credit companies are continuing to report relatively low claims figures , they all say that over the past quarter there has been an increase in claims numbers — which is ominous for the future .

As to the reasons for this , the leading one is hikes in interest rates . Higher interest costs are a significant risk for businesses and there is a direct correlation between hiking interest rates with insolvencies and business failure . This is putting businesses and consumers under real pressure while having little leverage over inflation which is largely derived from import related factors ( oil price , food costs , logistics costs ) beyond our control .

The second risk affecting the credit market is load shedding , more so among smaller formal businesses than larger businesses . There is a significant correlation between businesses going under and load shedding among smaller contractors .

They are suffering from triple blows from high interest rates , high inflation and high load shedding . A current illustration of what they are experiencing is displayed by the chicken sector where input prices , especially in food , have risen so fast they cannot pass them on fast enough to consumers . They are consequently trading at a loss , which is the first step to insolvency .

This forces credit companies to shift their credit stance from a more liberal one to a more conservative one . The previously mentioned firm reports an overall increase in rejections of about 20 % ² .

In the 180-day credit term — the maximum that is insurable — 2022 started off well with great optimism that the economy was about to rebound in 2022 from the Covid period and its aftermath . Most commercial companies were gearing up for growth on the back of higher commodity prices . That all changed with the Ukraine invasion , which directly started the inflationary pressures .

Apart from oil and food prices , shipping congestion had a major impact on inflation , especially for a country like South Africa which imports an enormous amount of finished goods , especially in the HVAC and refrigeration sectors . This was aggravated by South Africa ’ s own port problems . This directly resulted in delinquencies slowly but surely increasing . It has taken a while for the momentum of this process to impact on the commercial market but it is certainly now manifesting itself as seen by the liquidation statistics .

As for the outlook for 2023 , it will be more benign . The aforementioned risks will continue for some time , but at a moderating pace .

The scale of cybercrime continues to increase . The impact of this is far wider than just the actual direct risk . It is affecting businesses from a credit decision perspective , because each and every transaction now has to be far more carefully scrutinised . No online information can be taken at face value and one has to look at : How did this application come into being ; Has the salesperson actually visited these premises ; Who signed this credit application form , even to the point where practioners now compare ID documents to those filed with Home Affairs , as they can be falsified . RACA