Survey findings for Austria
Businesses offer credit to seek competitive advantage
Trade credit is currently involved in nearly 55% of the total value B2B sales in Austria. This is line with the average for Western Europe, although it represents a drop from last year’s high of 65.3%. A significant percentage of the businesses surveyed reported that they most often accepted requests for trade credit (chiefly from SMEs) to remain competitive. This was reported by 47% of respondents, compared to 29% at regional level. 26% of the businesses polled told us they granted trade credit as a source of short-term finance (higher than 19% average for Western Europe).
For 31% of the businesses there was an average 20% increase in the total value of their B2B sales transacted on credit after the onset of the pandemic. 57% told us that the total value of their credit sales, while 12% of respondents reported a 25% decrease.
The majority of credit refusals concerned SMEs customers and were due to lack of information on the business or the payment performance of the customer. This was cited by 33% of the respondents, far higher than 18% in the region, although it was also reported by businesses in Switzerland. A vast majority of the businesses surveyed in Austria reported setting payment terms for their customers up to 30 days on average (as reported by 71%). 16% set payment terms from 31 to 60 days, 6% set terms from 61 to 90 days and the remaining 7% from 90 days and above. 42% of respondents) reported granting longer payment terms after the onset of the pandemic, most often up to 20 days longer (regional average: 47%).
56% reported no change in the payment terms granted to their customers (regional: 48%), while just 2% (regional average: 6%) asked their customers to pay invoices earlier than before the pandemic, on average 15 days earlier than last year. The lengthening of payment terms is evidenced by the 42-day average for the country, far longer than last year’s 31-day average. The main reason businesses cited for granting longer terms is to encourage domestic sales (33% of respondents in the country, 32% regional average).
Over the coming months, 37% of respondents told us they plan will continue to apply the same trade credit policies they did during the pandemic (regional average: 31%). 33% intend to offer longer payment terms, mainly to encourage domestic sales (regional average: 24%). It is worth mentioning that only 5% of the respondents told us that they plan to offer shorter payment terms.
This supports the intention reported by many businesses that they intend to use credit to help them gain a competitive edge on the markets. Both trade credit and favourable payment terms may make a product or service more attractive and could make the difference in winning a contract. However, longer terms also increase the risk of customer default, particularly during times of adverse economic conditions.
A third of pandemic invoices are overdue
Following the onset of the pandemic, the total value of the invoices reported as overdue increased to 33% (up from last year’s 28%). This 19% year-on-year increase could lead to increased financing and administrative costs associated with carrying trade debts, although the proportion of Austria’s late payments debt is far below the 47% of total value of overdue invoices for Western Europe.
In terms of write offs, businesses in Austria also fared a little better than their peers in Western Europe. An average of 3% of the total value of B2B receivables was written off as uncollectable after the onset of the pandemic, below the 7% average for the region.
3% of the total value of B2B receivables was reported to be unpaid within 90 days. This indicates that, on average, businesses in Austria have lost 100% of the value of their B2B receivables that were not paid within 90 days.
The increase in late payments is also reflected in the lengthening of DSO. Compared to pre-pandemic times, 61% of the businesses surveyed reported DSO increases of up to 10% (regional average: 57%). 34% reported increases of more than 10% (regional average: 37%). Only 5% of businesses reported shorter DSO (regional average: 7%).
of respondents reported cash flow difficulties following start of the pandemic economic crisis, higher than the 38% average for Western Europe.
Atradius Payment Practices Barometer – November 2020
Half of businesses report cash flow problems
49% of respondents reported cash flow difficulties following start of the pandemic economic crisis, higher than the 38% average for Western Europe. 58% reported a negative impact on revenue, higher than the 51% average reported in the region. 40% said the downturn impacted negatively the capital costs related to accessing funds for carrying trade debt (regional
average: 31%). In response, the majority of businesses increased the amount of time, costs and resources spent on managing outstanding receivables (as reported by 41%, higher than the 37% in WE overall). 27% delayed paying suppliers and 27% sought additional financing from external sources (compared to 34% and 23% respectively in the region).
Businesses employ a range of credit assessment techniques
43% of the businesses surveyed in Austria told us that prior to the pandemic they normally relied on bank references to support credit checks (regional average: 39%). 37% reported using credit information provided directly from the customer and 37% sourced credit reports from specialist agencies (compared to 29% and 25% in the region respectively). After the onset of the pandemic, most of the respondents (60%) told us that they continued with this approach. Unlike some other countries surveyed, businesses in Austria had already been using a wide range of credit information sources. This is likely to be why the majority of businesses saw no need to change their approach. A key trend seen
elsewhere in Europe was a greater use of information obtained directly from customers. However, businesses in Austria were already doing this. When evaluating the customer’s credit quality during the economic crisis, businesses told us they focused on their customers’ past payment histories, as well on their finan- cial flexibility. The latter recognises the ability of the business to access liquidity to meet unexpected or unanticipated future needs. This is essential when the business environment is as volatile and uncertain as it is in the current recession. Over the coming months, however, businesses surveyed in Austria told us they would con- tinue with this approach.
Businesses increase frequency of invoice payment reminders
We asked businesses surveyed whether they altered their credit management policies in response to the pan- demic recession. They told us that prior to the onset of the pandemic they most often used overdue invoice payment reminders. With 60% of respondents reporting this, payment reminders were the most often practised credit risk management activity (regional average: 50%). 54% of respondents in Austria told use they offered discounts for early payment of invoices (regional average: 48%). Following the onset of the pandemic downturn, businesses told us they
performed both of these activities more often. In addition, businesses more frequently outsourced overdue invoices to debt collection services and increased requests for payment guarantees. Additionally, respondents began to practise trade debt securitisation and adjustment of payment terms to safeguard liquidity levels. Over the coming months, most respondents (53%) told us they will request payment in cash, resort to self-insurance (48%) or make use of credit insurance (42%) to protect the business against customer payment default risk.
Businesses divided about outlook for 2021
May be due to the fact that the future development of the pandemic is still uncertain, businesses surveyed in the country are equally divided about the outlook for their customers’ credit quality over the coming months. 34% expect deterioration, 32% anticipate improvement and 32% predict no change. Compared to the 47% of businesses in Western Europe that believe their customers’ creditworthiness will improve over the coming months, we can infer that businesses polled in Austria are far less optimistic than their peers in this regard.
In fact the only metric where the majority of businesses express optimism is when we asked for their views on the outlook for the domestic economy. 55% expect the domestic economy to improve, 12% expect no change and 3% said they think it will deteriorate. As for the global economy the majority of businesses are divided. 43% expect it to improve and 43% say it will get worse. 14% anticipate no change. In terms of international trade 39% of businesses said they think it will improve, but 43% believe it will get worse. 18% anticipate no change.
42% of respondents in Austria told us that the pandemic downturn had a negative impact on the profitability of their business. This is slightly higher than the 37% average for the region and may in part explain why businesses told us that the greatest threat to profitability in 2021 is the continuation of the economic crisis due.
This concern was reported by 40% of respondents (higher than 30% at regional level). The second most-reported threat to business profitability is difficulty in maintain- ing adequate cash flow. This was cited by 37% of respondents in Austria, compared to 38% in the region.