Credit Management January February 2024

INSIGHTS
HAPPY
NEW YEAR?
What does the credit community
expect from the year ahead?
BY SEAN FEAST FCICM
EVERY New Year starts with a sense of optimism
and hope, even though 2023 ended with a
mild sense of foreboding. So what can we
expect over the next 12 months in the world
of credit? Will we see a tightening of credit
availability? A lengthening of payment terms?
An increase in the number of business failures?
And what about the economy in general and will certain sectors
fair better than others?
Oliver Collinge, an Insolvency Practitioner and Director of the
Restructuring team within PKF GM sets the scene: “Corporate
insolvencies ended the year at close to the record high they reached
in the spring,” he says. “As with that earlier peak, though, the vast
bulk of these are liquidations of smaller companies so the statistics
are deceptive – redundancies (as reported by the ONS) remain at
fairly low levels, suggesting these insolvency numbers aren’t having
a significant macro-economic impact.
“As regards next year the outlook is mixed. Some of the major
pressures which businesses were facing this time last year
have receded: inflation has fallen significantly - CPI halved
from 9.2 percent in Dec 22 to 4.6 percent (in October 2023) -
and supply chain pressures have eased markedly. “That said,
interest rates are higher than a year ago and there is higher
leverage in the economy than pre-pandemic as businesses
continue to repay COVID-related debt: of total COVID
borrowing (i.e. via Government backed schemes such as
BBLS and CBILS) £31bn of the original £77bn lent remains
outstanding (this excludes amounts written off due to fraud and
insolvency).”
Oliver believes the impact of these higher rates on consumer
spending is also likely to become more pronounced in 2024 as
more fixed rate mortgages have to be refinanced at these new,
higher levels: “Throw in continuing geopolitical uncertainty,” he
continues, “and elections on both sides of the Atlantic later in the
year and it’s easy to be pessimistic about 2024.”
In terms of insolvency numbers, Oliver expects the volume to
fall, but the make-up of those numbers to change: “Broadly I
would expect a reduction in the headline insolvency numbers but
possibly more ‘meaningful’ failures (i.e. failures of large businesses
as opposed to large numbers of micro-company failures distorting
the picture as we’ve seen this year) as the impact of higher mortgage
rates on consumer spending continues to be a drag on growth
and the increased cost of debt service continues to whittle away
cash reserves.”
Ant Persse FCICM, CEO of Optimum Finance, similarly believes
there will be a number of high-profile failures to come: “When
that happens there is often a ripple effect to smaller businesses
who are part of the supply chain and they may be impacted by
bad debts as a result,” he says.
He concurs that the increase in base rates will impact those
businesses looking to refinance: “Many will have taken term loans
during the COVID pandemic which are set for renewal and these
will be at a higher rate,” he explains. “Many are still seeing the
impact on cashflow of having to repay their COVID loans and
deferred HMRC payments, despite many being granted what
might be considered a reasonable ‘Time to Pay’.”
Andrew Birkwood FCICM, Founder and CEO of SME debt
purchaser, Azzurro Associates, characterises last year as challenging:
“In the end, however, the impact on expected performance was
comparatively benign, albeit the economy and particularly the
higher interest rate environment has impacted SMEs ability to
refinance their way out of their premium cost credit. As a result,
many SMEs are tending toward negotiating a restructure of their
credit terms, leading to extensions and longer term repayment plans
with their creditors – some of which are then being sold to firms
such as Azzurro. From our perspective, the market is beginning
to show signs of maturity as regular ‘flow’ debt sales become the
norm, and price volatility has settled.”
In terms of access to credit, Andrew says that SMEs have a
substantial array of options to choose from today with regard
to the right mix of credit in their business: “From term loans to
business credit cards to embedded finance, the fintechs are leading
the charge in innovating the challenge of providing fast access
to credit for SMEs. This trend will continue this year, enabling
businesses to manage their cash flow demands in a sophisticated
manner.”
Brave | Curious | Resilient / www.cicm.com / January & February 2024 / PAGE 8