The latest global risk to manage
Not even half way through the year, Richard Reynolds believes there is already one thing that will define 2017; uncertainty.
Almost a year on from the Brexit referendum, we are no closer to knowing what a UK outside of the EU will look like or what the true impact of this will be. The announcement of a snap general election preludes further uncertainty and the most common answer from businesses when you ask them about the future is to “wait and see”.
The UK isn’t alone when it comes to potential market disruption. Whilst the UK was still coming to terms with the decision to ‘Brexit’ in the US the presidential election delivered the appointment the unpredictable Donald Trump.
With onlookers pondering “what next?”, Europe faces a year of potential major change with elections in the Netherlands, France and Germany – not to mention the possibility of Italy also heading to the ballot box. Changes could be on the horizon with any gains among populist parties potentially undermining support for European cooperation and threatening further economic reforms. The level of political uncertainty now in Europe and North America is unprecedented in recent decades and will challenge economic activity.
But business does not wait for politics and any hesitation will lead to missed opportunities, creating market stagnation and negativity which will ripple throughout the economy. The good news is that while political uncertainty is weighing heavily on the business environment, we are still seeing improvements in performance.
The latest Atradius Global Insolvency Forecast reveals that the rate of insolvencies will improve by two percent this year across advanced markets. While this is a slowdown from a three percent improvement in 2016 – and a marked slowdown from the seven percent improvement in 2015 – we’re still moving in the right direction, although on a global scale the picture remains mixed.
While insolvency statistics indicate that the rate of business failure is slowing marginally, we must also remember that UK insolvencies will still be nearly 10 percent above pre-recession rates.
The recent Atradius Payment Practices Barometer found that up to 90 percent of British businesses reported late payments from their domestic and overseas customers with around half of invoices unpaid at due date. Businesses also claim that 1.3 percent of their B2B receivables were entirely uncollectable. Non-payment and late payments put a significant strain on the finances and potential profitability of a business and while larger companies may be able to weather the pressure, for smaller companies this can be catastrophic.
There will never be a time that you can trade without risks, the current political and economic uncertainty is just a new risk to manage. With the context set, businesses can prepare themselves to take advantage of global trade opportunities and mitigate the risks that they face.
Despite the uncertainty of Brexit, British businesses will continue to trade, both within the domestic market and with export partners. Exporting offers great opportunity for growth but firms need to ensure they step forward with their eyes open and equipped with the level of knowledge and understanding about their trading partner that will enable them to navigate the risks that they may encounter along the way.
Uncertainty may be the backdrop, but it is by no means a show-stopper.