Financial crisis reduces liquidity of German businesses

The crisis on global financial markets is now also impairing the liquidity of German companies. In contrast to the development in recent years, this year the number of insolvencies is just slightly decreasing. According to the German association of collection agencies (BDIU), the number of insolvencies is expected to fall to 28.500 in the year 2008. Mr. Stephan Jender, BDIU president, on Thursday in Würzburg warned that over the next months companies will once again have to face difficulties in ensuring their liquidity.

Banks would check the credit worthiness even more strictly before granting a loan so that companies would have to revise their financial management. “Therefore, if the financial crisis was to deepen over the next few months and the economic upswing slowed down at the same time, there may once again be a rise in company insolvencies”, said Mr. Jender.

In general, the positive development in terms of payment behaviour could soon come to an end due to the financial crisis, warns Mr. Jender. Even though in the course of the traditional spring survey by the BDIU 81% of companies interviewed said that invoices are paid duely, this positive development does, however, not refer to all kinds of debtors. Thus, as many as 38% of companies responded that private debtors pay their invoices less regularly than in autumn last year and 16% said that businesses paid their invoices irregularly.

According to 83% of collection agencies, important reasons for which private debtors do not at all or not on time pay their invoices are too many debts as well as unemployment (78%). These are the two main causes due to which the number of private insolvencies is going to rise to a new record high of presumably 125.000 cases by the end of this year which is almost 20% more than last year (105.238). The amendments which were initiated by Mrs Brigitte Zypries, the Federal Justice Minister, with regard to private insolvency procedures will, according to the BDIU, lead to another short-term increase in the number of private insolvencies. The peak, however, would soon be reached. “The peak lies at between 160.000 and 170.000 cases per year“, says Mr. Jender.

According to the BDIU, it was more important to improve the financial responsibility of consumers instead of introducing legal changes. In particular adolescents do often lack the financial knowledge in order to take financial decisions by themselves. One possibility to change this would be to teach them at school how to avoid debts.

Lacking financial knowledge, however, is not only a problem of private customers. According to collection agencies, the payment behaviour of public companies is still not satisfactory. Thus, 93% of BDIU members say that the bad payment behaviour of cities and communities did not change since last autumn. According to the BDIU, communities themselves are currently lacking at least 12 billion Euros due to unpaid invoices. GERMAN