“We are only really entering the woods at this point,” said Zara Mends (pictured above). “The full impact is yet to be realised of sustained high interest rates, continued inflationary effects and a general downturn in business activity and sentiments.”
Mends is managing director at NCI Trade Credit Solutions, NZ. She told Insurance Business that the first months of 2024 have brought a “significant increase” in overdue payments and collections activity. Trade credit insurance is a risk management tool that offers protection against these sorts of debts.
NCI is a specialist broker in this space. The firm also educates and partners with insurance brokers in a range of fields who don’t have this expertise to help them protect their clients’ businesses.
Mends said construction related business is featuring heavily in her firm’s claims data and also in current insolvency numbers.
“It was a slow start into the new year, building consents are down, margins are under pressure and the results are builders are failing,” she said.
Other industries where their claims numbers are high, she said, include food provisions and manufacturing. Across these sectors, Mends said they have a wide cross section of clients from other industries doing business.
“Labour hire, advertising and media, building merchants, plumbing merchants, electrical merchants – so the impact of these insolvencies is not limited only to the specific sector where businesses are failing,” she said.
The export sector is another area under pressure.
“We also work for a large portfolio of exporters and we are seeing increasing challenges, particularly for perishable products and food related trade,” said Mends.
She said shipping times, extended terms and fraudulent behaviour from buyers are all contributing to non-payment of trade debts.
Mends gave a cogent analysis of the drivers behind the financial challenges facing brokers and their customers.
“We are in a manufactured recession, post a pandemic,” she said. “The cash rate is high, people borrowed a lot of cheap money during the pandemic which is now rolling onto much higher interest rates.”
She also said the COVID stimulus “pumped cash into people’s pockets.”
“This created a false economy, skyrocketed the property market, pushed inflation up to nearly 8% and increased costs across nearly every aspect of doing business,” said Mends.
The supply chain struggles during the pandemic resulted, she said, in many businesses overstocking and holding “much higher” than comfortable inventory levels when the economy started to cool.
“This resulted in a supply gap while levels were run down,” said Mends. “We had a boom, and now we are seeing the other side to the cycle.”
Mends said she hopes this downturn is short lived “and we will start to see green shoots soon.” She suggested this may happen when there is “some clarity on the OCR (official cash rate)” and also any potential easing of monetary policy.
“Unemployment is still low, net migration is high, and we still have a housing shortage and need infrastructure work done,” said Mends. “The government are looking for ways to reduce regulation and make it easier to get construction happening again and the money to make it happen – the signs are there for a turnaround.”
Mends said Companies Office records show that 236 New Zealand companies entered liquidation in March 2024 – a six year high.
“In fairness, we are coming off a relatively low base; however, the trend is concerning,” she said.
Figures on the Companies Office website also show that in March, a further 26 firms went into receivership and 20 more into voluntary administration. The first quarter of 2024, according to the website stats, has seen 489 liquidations compared to 382 for the same quarter last year, an increase of nearly 30%.
A major concern for most businesses NCI speaks to, said Mends, is their customers’ ability to meet payments. As a consequence, she said these businesses are spending more of their time chasing up these debts.
“Our claims activity is higher than pre-pandemic levels and our collections data indicates this will continue in the short term at least,” said Mends.
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