March 1, 2023 New Report Finds Businesses Lost $54B in Legal Filings

Creditsafe’s State of Credit Risk: 2022 report reveals financial & legal challenges businesses face.

Allentown, PA – 2022 was a rough year for American businesses, plagued by inflation uncertainty, supply chain disruptions, higher operating costs and labor shortages. What’s more, legal filings drained American businesses of over $54 billion, with retailers taking the brunt of it – losing over $10.28 billion alone. Creditsafe’s new ‘State of Credit Risk: 2022’ report, released today, uncovers these and other findings, including which sectors were the most reliable and creditworthy and how well small, mid-market and large companies paid their bills.

The ‘State of Credit Risk: 2022’ report not only uncovers how American businesses fared in 2022, but it also offers useful tips to help businesses improve their cash flow, minimize financial and legal risks that could drain them of revenue and weather the storm of the looming recession.

“The State of Credit Risk: 2022 report felt like an incredibly important piece of content to release, given the impact COVID-19 has had on businesses over the last three years and the ongoing fears of a looming recession in 2023,” said Matthew Debbage, CEO of the Americas and Asia for Creditsafe. “Businesses can’t afford to hope and guess when it comes to managing and reducing their risks. That’s not good enough. Businesses need reliable data that not only gives them the full picture of their customers’ financial health and payment behaviors, but also helps them anticipate and prevent risks that could deplete their cash flow, negatively impact their business credit score, lead to costly legal filings and put them on the path to bankruptcy.”

The report is based on trade payment data in the Creditsafe database, which holds more than $10 trillion of information in value terms based on over 320 million payment experiences. The data comes from over 9,000 trusted and official sources and is updated up to 5 million times a day to include credit scores and limits, financial information on up to three years of annual accounts, bankruptcies, judgments and lawsuits.

Key findings from the report include:

The retail, professional services and construction sectors found themselves in legal trouble.

• The top three sectors with the highest number of legal filings were: professional services, retail and construction – each with over 200,000 legal filings last year.
• Retailers were hit the hardest, losing the most amount of money to legal filings –  over $10.28 billion alone. Professional services firms followed close behind losing over $9.78 billion, while construction companies came in at a distant, but still notable third spot, losing over $3.37 billion.

Bigger isn’t always better: your biggest customers could be your biggest threat.

• Large businesses are the most likely to pay suppliers late, with an average DBT (days beyond terms) of 19 in 2022, compared to small businesses (18) and mid-market businesses (16).
• Mid-market companies are the most reliable, translating into higher credit scores. On top of having the lowest average DBT (16), mid- market companies also had the highest credit scores – an average of 64 – which put them into the ‘low risk’ category.  
• Cautious spending and raising prices helped small businesses keep their payments stable throughout the year. The average DBT for small businesses was relatively steady in 2022, staying at 18 for most of the year – except for June 2022 when it improved slightly and dropped to 17.

Economic uncertainty doesn’t dictate business success.

• Despite the turbulent economy, bankruptcies fell for the third year in a row. In particular, bankruptcies dropped from over 35,000 in 2019 to just over 20,000 in 2022.

Credit risk is more than a credit score – it impacts credit limits and lending/financing approval.

• Business credit limits are going down because most companies are classified as ‘very high risk.’ In 2022, the vast majority (93%) of American companies had a credit limit of less than $10,000. But only 2% had a credit limit between $50,000 and $250,000. This is likely because 68% of American businesses fell into the ‘very high risk’ category.

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