Intercompany Indebtedness – Problems and Possible Solutions

Authors:

Pages: 141-151

Abstract:

The effective trade credit and debt collection management is a problem that every company faces sooner or later. Pursuant to Euler Hermes, customer receivables usually account more than 40% of a company’s assets and one in ten invoices on average become overdue, many of which end up as unpaid bad debt. According to the estimates and expectations of Bulgarian National Bank for the first quarter of 2022 intercompany indebtedness in Bulgaria is growing, although at a slow pace, which is a prerequisite for the increasing of the bankruptcies number. Ciela Info reports show that the number of companies going bankrupt grows every year. The debtor companies are progressively rescheduling their payments and it is more and more difficult for them to repay their debts. As a result of the COVID crisis and the situation in Ukraine, even the largest companies in the country begin to suffocate and prolong the days of deferred payment. In order to continue to exist, businesses need to take only a well-measured trade risk, which is expressed in the granting of trade credits that do not negatively affect the operating result. This risk needs to be analysed, predicted and managed. The report represents the current state of the intercompany indebtedness in Bulgaria, identifying and analysing the factors that cause its escalation, as well as focusing on possible solutions to deal with the problem.

Keywords:

intercompany indebtedness, trade credit, debt, credit risk.

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