Number of bankruptcies stabilized in Q1 2019 – Good or bad news?

So far, in the last 12 months (counting until end of march 2019) 623 entrepreneurs have declared bankruptcy. It seems that the figure is not high and remains stable compared to previous years. Experts have even found that the figures for march 2019 are by 1.4% lower than last in March 2018.

At the same time, data suggests that at least 1/16 (1/9 in the services sector) of those declared bankrupt indicated that unreliable debtors withholding due payment were the main reason for bankruptcy. At least 6% of companies confirm that delayed payments from their debtors have in the past year caused their business to become (even if some of the only temporarily) insolvent. The figure was higher (11%) in the services and transport sectors. This in itself poses a threat to the economy, as the numbers are growing.

Comment:

The Polish market has always had a significant problem with unreliable business partners (which market hasn’t?). This shows greatly in the sector differences. Payment is more common with goods providers as they have extra tools to enforce payment of their claims (e.g. withheld ownership of goods until full payment) whereas service providers do not (a service once done cannot be undone doe to lack of payment of remuneration). This means that when Polish entrepreneurs are not forced to pay, they try not pay.

From my experience, the figures relating to insolvency of companies due to lack of payment of their dues are much higher than officially stated. Companies admit to unreliable debtors only when faced with lack of cash for current payments and tend to keep large amounts of useless claims in their balance sheets as receivables so as not to jeopardize their credit rating (by lowering the total value of their business). Most long-term receivables are put in the balance sheet with little or on discount although the management knows these to at least risky to enforce.

As the numbers of unreliable debtors are growing, so will the situation of their creditors become more precarious. Event though the beginning of the year was stable in term of bankruptcies declared, as compared to previous years, there is a growing number of Polish companies which burn cash like crazy to keep going, due to their inability to enforce payment of remuneration for their goods and services. We are seeing a slowdown in the global economy (as well as “less than entrepreneur -friendly” legislature in Poland) impacting smaller Polish businesses which will in the next 6 months lead to the domino effect.

Withheld payments will force even more withheld payments and the companies with the least cash reserves will be the first to go if they do not own up to their problems and start to restructure their operating costs now. The number of restructuring proceedings in Poland is not yet growing – which means that many companies remain either oblivious or negligent of their growing problems and the need to restructure quickly. Many will wake up when it is too late.