More Romanian companies forced to delay payments in November

If few months ago we were wondering to which extent the US financial credit crunch will affect Romania, now we have the certainly that we will soon have to deal with a full-blown crisis.

The economic evolution in the past two months, October and November, has confirmed the signals of a local crisis.

The first signal of a financial blackout was triggered since June-July, when the collection process of matured debts reported by the Insured within Coface Romania database was burdened by debtors’ liquidity shortage, and due to outweighed drawbacks in accessing banking loans.

The companies’ failure to make payments to providers from short-term financing, rather than from own earnings, has confirmed this financial blackout.

Twice more companies faced payment delays reported by the Insured within Coface database. Thus, approximately 60% of these payment failures appear in construction industry, followed with wide margin by fast moving consumer goods and IT sectors.

Romania companies’ liquidity drought is also confirmed by the mounting number of companies whose payment tools are declined by banks due to the lack of funds in their accounts.

A survey of 3,500 companies within Coface’s database found that 5% of them had payment failures, and 2/3 of them experienced delays in making payments in the last month.

Although the number of incidents is alarming, the fact that in many of these incidents the actors were companies with positive financial reports in 2007 is even more alarming.

For example, a company in FMCG retail industry with 15 million euros turnover in 2007 had 109 payment instruments declined in three weeks, while a producer with 20 million euros turnover in 2007, had 55 payment instruments declined in one week.

According to data made public in the Insolvency Bulletin, approximately 2,000 insolvency procedures were initiated in October and November only, and the evolutions revealed within debt collection procedures highlight how often the insolvency procedure has become, and that it has become a measure to retrieve delinquent debts, even if the debtor is a large and apparently solvable company.

“We haven’t seen the bottom level of a crisis yet; we are only at the beginning. The year 2009 will be a sacrifice and all sectors and companies will set to take the heavier losses in the coming period. Only those players who will correctly implement reorganization and risk management programs, and whose management will be able to anticipate and avert the main perils likely to affect the company in the coming year, will be able to withstand the pressure of the economic crisis. We expect to see bankruptcies of companies with positive balance sheet in 2007, but they will fall at the first major impact of the crisis on the sector they operate”, said Cristian Ionescu (photo), managing director of Coface Romania.

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