Broken piggy bank with band aid bandage or plaster in finance background concept for economic recession, depression or bankruptcy

Slight dip in rising bankruptcy trend

New figures from Statistics Finland show that 269 bankruptcy applications were made in October, compared to 216 in October the previous year.

The number of bankruptcies has increased by 20% from October last year to October this year. Bankruptcy applications for 269 companies were filed in October. The growth slowed slightly in September, when 310 bankruptcy filings were made, Statistics Finland says.

The bankruptcy numbers have been a topic of discussion all year. The current weak economy is having a particular impact on construction and services. We previously reported on bankruptcy numbers here and here.

The sector-specific situation remains the same. Construction suffers particularly from delays in starting new projects. There have been significantly more orders for renovations.

“Most typically, the Tax Administration and pension providers are the biggest applicants for companies’ bankruptcies. These big creditors have said all autumn that the number of payment demands sent to bankruptcy-risky companies and the number of bankruptcy applications would increase by around 20%,” Tiina Toivonen, Legal Affairs Manager at Suomen Yrittäjät, the Finnish SME association, says. At the same time she notes that not all bankruptcy applications end in bankruptcy.

Suomen Yrittäjät predicts that the total number of bankruptcies will rise to around three thousand by the end of 2023. That would be lower than the level during the 2008–2009 financial crisis.

The number of bankruptcies has increased by 20% from October last year to October this year.

Long payment terms increase bankruptcy risk

Toivonen notes that the current economy is not the only factor influencing bankruptcy numbers.

“There’s still a range of reasons for bankruptcies, such as the difficult post-Covid economy, high interest rates and inflation. One in four bankruptcies stems from companies’ contractual partners not paying their invoices on time. However, business owners still have to pay their bills, such as payroll, taxes, rents and production costs, on time.”

We previously reported on the effects of long payment terms on business owners here. This is not just a Finnish problem: delayed payments and long payment terms also bedevil businesses across Europe.

“Some long payment terms are a consequence of us having a Payment Term Act which is not obeyed. A payment term of over 30 days can only be used between businesses if both parties consent to it.”

A study conducted by Suomen Yrittäjät found that over half of SMEs said they had encountered breaches of the Act. The payment terms are often dictated by large companies which force acceptance of long, favourable payment terms.

Help from counselling service

Toivonen says she hopes large creditors quickly steer business owners towards counselling services.

“Some bankruptcies could be avoided if the business owner sought help for their company’s financial and payment problems in time. The Tax Administration and pension providers are usually the first to see business owner’s payment difficulties. There would be grounds for these big creditors, at least, who most frequently apply for companies’ bankruptcies, to quickly steer companies in difficulty towards counselling services.”

In late summer, the Tax Administration piloted advising business owners who faced difficulties paying taxes towards the Yrittäjän talousapu financial counselling service.

“This seemed a successful model and we hope that this steering becomes a permanent approach in the Tax Administration,” Toivonen says.

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Pauli Reinikainen