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KeysFin survey: Romanian Insolvencies. Main causes, effects and perspectives for 2018
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The economic growth mirage risks blocking the business relations in Romania. The Business Barometer alerts on rising insolvency risks
The Romanian economy risks more and more financial bottlenecks as the number of companies facing financial difficulties increases from month to month. This is the opinion of most business representatives questioned by Frames Media Network and KeysFin in a recent survey on local company insolvencies, commissioned by Sierra Quadrant, one of the main players on this market.
107 out of more than 150 businessmen questioned in the Frames & KeysFin Business Barometer, conducted between 10th-15th July 2018 stated that they expect an increase in the number of insolvencies due to the deceleration of the local economy.
"More and more payments are overdue, and this evolution has a strong impact on the SMEs (that represent 90% of the economy), especially the companies with a delicate financial position, that survive from one invoice to the other”, is one of the main survey conclusions.
According to the Trade Registry data 9,102 companies and registered sole traders started the insolvency proceedings last year after increasing by 8,73% when compared to 2016. The trend continues in the first 5 months of 2018, with 3,686 registered cases, 11,97% more when compared to the same period of last year.
When asked about the main causes of insolvency, 64% of respondents primarily listed the financial indiscipline.
"There are many managers, who, on one hand have scarce business know how, a major influencer of the company dynamic. On the other hand, there are lots of investors that try to “go around” the common business practices, as to maximize their revenues, and this has an impact mostly on the less capitalised businesses”, said the representatives surveyed in the Sierra Quadrant Business Barometer.
Overestimating revenues, the lack of information on their business partners and the excessive dividend payment policies that are uncorrelated to the business dynamics have also been listed by the respondents as important causes of company insolvencies.
When asked about business partners in insolvency proceedings, 45% of respondents stated that they have had at least one contact, mainly in the retail and wholesale trade sectors.
63% of respondents stated that their partners’ insolvency processes did affect their own activity as the latter failed to pay their due amounts in time.
The most recent Trade Registry data, from June 2018 also confirms that the wholesale and retail trade and repair of motor vehicles and motorcycles was the scope of activity with most insolvencies in the first five months of 2018 – 1,130 (up 13.68%).
According to the Trade Registry data, in the first five months of 2018 most companies and registered sole traders were based in Bucharest - 737 (plus 2.50% when compared to the same period of last year) and in the Bihor - 237 (up 22,16%), Iasi - 213 (up 4,41%) and Timis counties 181 (up 27,46%). 721 companies and registered sole traders started insolvency proceedings in May alone.
HOW TO AVOID INSOLVENCY
When asked about measures to mitigate insolvency risks, 74% of respondents primarily listed those aimed at strengthening the company’s financial position.
The interviews also revealed that a better business relations management is also very important from this perspective.
"It is therefore essential that you gather information on your business partners beforehand, on their financial position or legal status. On the other hand, a better estimate on your partner’s business is necessary as most companies become insolvent due to overestimating their revenues, the industry’s evolution, their location, partners, supplier and client behaviour”, said Ovidiu Neacsu, Sierra Quadrant coordinating associate, insolvency official receiver with more than 20 years of experience in the field.
Among the preventive measures, the businessmen also listed the responsible investment management, cost optimisation and the accurate bank financing assessment (indebtedness degree).
"Based on our experience a company becomes insolvent mainly due to the financial bottleneck resulted from insufficient available financial resources, to bad investments and the lack of a good, economy-based, risk management strategy. Moreover, there are significant education related know how gaps in various companies, from entry to top level employees. Financial education is thus one of the main preventive measures to take”, said Ovidiu Neacsu.
According to the Trade Registry data, beyond the evolution of insolvencies, from January to May 2018, 8,364 companies had their activity suspended (up 30.81% when compared to the same period from last year), of which 1,406 in May alone. Another 15,750 legal persons closed their businesses (up 59.49% from the same period in 2017) and of these, 3,098 companies in May alone.