77744EQD EQ Riskfactor Article 2022 Predictions V15

What’s Ahead For Receivables Finance In 2022?

26 January 2022

In this blog, our experienced Account Manager, Richard Pride, shares his views on what 2022 has in store for the receivables finance industry.

Difficult Times Ahead

Whilst 2020 and 2021 have undoubtedly been challenging years for most organisations, we have seen a significant reduction in provisions driven by frauds and client failures, mainly thanks to Covid-19 economic measures introduced by the government.

As we go into 2022, we expect to see opportunistic fraud increase following the withdrawal of government support. This risk will likely be fuelled by the return of evictions, repossessions, and the withdrawal of payment holidays on existing finance agreements.

Credit insurers and bad debt protection providers will likely make substantial cuts to credit limits when client failure accelerates at short notice. Cutting credit limits could lead to clients resorting to desperate measures to ensure employees and creditors are paid. Inflation is expected to remain high throughout 2022, driven not just by Covid-19 related supply issues but also by rising energy costs and the ongoing side effects of Brexit.

The Omicron Covid-19 variant has led to more uncertainty and restrictions, especially within the hospitality and leisure sectors, which have already suffered tremendously throughout the pandemic.  The whole supply chain surrounding this sector continues to be affected. Working 'from home if you can' is due to be lifted in England but remains in other locations, and we are yet to see if the government will re-introduce financial support measures. Whatever happens, uncertainty will be everywhere in 2022 for both lenders and their SME clients.  This uncertainty puts extreme pressure on receivables finance clients and could lead to a rise in fraudulent transactions across the industry.

Keeping Safe In 2022 – Top 3 Metrics To Track

As we navigate into 2022, it is paramount that lenders keep a very close eye on key risk metrics. The top 3 to consider are as follows:

1. DSO and Cash Turns

We are likely to see DSO and Cash Turns increase due to the knock-on effect of increased creditor pressure from inflation and high staff absences. In some cases, you might see clients citing both reasons as an excuse not to pay on time! An increase in DSO and Cash Turn means that funds in use are likely to increase, and invoices are more likely to become ineligible, causing funding and subsequent cash-flow issues for affected clients.

2. Sales Movement

Sales are likely to differ from what is typically expected for each client. Supply chain issues and end-consumers staying at home may slow some sales. Conversely, some industries (often online) will see an increase in sales, driven by the very same people who must isolate or choose to avoid retail environments. In summary, few clients are expected to have a ‘normal’ DSO/Cash Turn for this time of year!

3. RiskScore

As a result of the above changes and movements in key risk measures, the RiskScore of many clients is expected to increase. Ensure that the RiskScore is being monitored regularly in your business, especially on clients with high borrowing. If you are not doing so already, we would recommend setting up Focus Lists to highlight changes to the RiskScore or setting up Subscriptions on high-risk portfolios to enable EQ Riskfactor to automatically update you regularly at a time that suits you. 

If you are a client please reach out to your account manager for any assistance configuring EQ Riskfactor to ensure it is working to highlight risks before it is too late. For all other enquiries please contact us today using the button below. 

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