Polish companies trying to bounce back. Those who check do not fall!

Many Polish businesses still feel the effects of the economic slowdown. It can be seen in the number of Polish bankruptcies. In the first half of 2010, eight per cent more businesses went bankrupt than in the corresponding period of last year. The number of bankruptcies may be growing until the end of 2010. Those who run a business must look for information about their prospective counterparties and bussiness partners to avoid starting a business relationship with a bankrupt company and signing an agreement which will not be performed. Credit information bureaus are among the best sources of knowledge about prospective business partners.

The number of bankruptcies has been steadily growing since the start of 2009. In its report on bankruptcies, Coface Poland notes that in the first half of 2010 courts declared bankruptcies of 335 Polish companies. It is 8.4% more than in the corresponding period of 2009. It is thus very probable that in 2010 the number of bankruptcies will exceed the number from the preceding year as many companies will still be burdened by past due debts incurred still in 2009. Therefore they will not be able to quickly restore their market position. 

“Liabilities which arose in 2009 continue to be a threat to the financial stability of many companies,” said Urszula Okarma, President of the ERIF Register of Debtors. “ Some of the companies which so far have not had any special problems with staying on the market may now bend under the weight of accumulated debts. As a consequence, some of them may disappear from the market,” added Okarma.

Declaring bankruptcy by a company is bad news not only for the company itself but also for its market environment including counterparties, business partners and customers. Counterparty bankruptcy means e.g. lack of payment for services provided or lack of possibility to collect good that have already been paid for. The impact of a poor financial condition of an entity on the entire market can be seen clearly on the example of the real estate market. When a developer declares bankruptcy, his customers risk losing money. They will not recover the funds advanced towards the apartments or houses that were to be constructed. Another group hit by such bankruptcy may be suppliers and subcontractors. Usually they will not receive payment for the goods supplied or services provided. Obviously the assets of a bankrupt will be sold and the relevant proceeds will be paid to creditors (counterparties and customers). However, the amounts recovered are usually much lower than the debts owed by a bankrupt. Thus, not everyone will receive their money back.

It is worthwhile then to be protected against  situations which may lead to loss of liquidity. One of the ways to do it is to carefully verify the financial credibility of business partners. Such verification can be done via credit information bureaus. They are specialised companies which gather and disclose credit information including debt details. The fact that a prospective counterparty or customer has been reported to a credit information bureau should flash a red light. Starting business with such a company involves a risk of losing money. “If a company is registered with a credit information bureau it is a sign for us that its solvency may be limited and that it has lost its ability to pay its liabilities when they become due,” warns Urszula Okarma.

The observations of the ERIF Register of Debtors show that interest in the services of credit information bureaus has been growing significantly in recent months. Thanks to the new act regulating the activity of credit information bureaus, the resources of debtor data have also been growing. The above means that more and more information about bad payers is available which translates into increased security of trade in general. All this is true on condition that businesses use the above tool. Today it is right at our fingertips. “It is clear that companies learned a lesson from the crisis and are looking for information about prospective business partners. To avoid financial liquidity problems they prefer to work with entities whose credibility may be checked and which make regular payments of their financial obligations,” concluded the president of the ERIF Register of Debtors.