Main survey results for Bulgaria
Negative impact on revenue hits Bulgaria hardest
Bulgaria leads Eastern Europe in the proportion of businesses reporting a negative impact on revenue (70%) and volume of sales (66%) caused by the pandemic-led economic crisis.
Across the countries polled in Eastern Europe, Bulgaria was second only to Slovakia in the percentage of businesses reporting a negative impact on cash flow and profitability (59% in Bulgaria versus 63% in Slovakia for cash flow, and 55% versus 58% for profitability).
Such a squeeze on revenue means the cost of capital could not be offset and this in turn eroded profitability.
Businesses offer trade credit in a bid to win sales
Trade credit is currently involved in 40% of Bulgarian B2B sales, up from last year’s 34%. A significant percentage of businesses polled for the Payment Practices Barometer in Bulgaria reported an increase in B2B sales made on credit (35%). This increase contrasts with the 19% reported decrease in credit sales and is part of a clear trend in favour of offering B2B credit. On average, the B2B sales transacted on credit in Bulgaria increased by 27%.
Businesses told us the primary reason for offering more trade credit during the COVID-19 economic crisis was to stimulate sales (48% of respondents). Supporting trade was also a key driver with 27% of businesses telling us they offered credit to provide liquidity to B2B customers in financial distress. 24% of businesses offered B2B credit in an attempt to stay competitive in a tougher economic environment.
Half of businesses offer longer payment terms than before pandemic
For 50% of the businesses polled in Bulgaria, payment terms are longer than before the pandemic (45% reported no change and 6% shortened payment terms). Respondents to our survey told us this approach would also be applied over the next six months, indicating a clear trend in favour of more lenient trade credit policies among the country’s business community.
Reflecting attitudes towards offering B2B credit, the majority of respondents to our survey told us that the main reason for granting longer terms was to encourage sales.
This was reported by 38% of respondents, followed by 23% of businesses that told us they sought to stay competitive on the domestic market.
Interestingly, although such a clear majority of businesses told us they were offering longer payment terms, these are largely less than 30 days. 76% of businesses polled in Bulgaria (the largest percentage of all of the countries in Eastern Europe) reported setting payment terms of 30 days or less.
Looking forward to 2021, the greatest causes of concern for businesses in Bulgaria are falling demand for their products and services, a further deterioration of both the domestic and global economies, and a decrease in international trade.
Atradius Payment Practices Barometer – November 2020
Pandemic leads to increase in overdue invoicesfor payment guarantees
The pandemic-induced economic crisis led to a significant increase in the total value of overdue B2B invoices (38%, up from 23% last year). However, despite this increase in overdue invoices, comparisons with last year show a decrease in the total value of B2B invoices written off (down to 2% from last year’s 5%).
The increase in late payments can be seen reflected in the lengthening of DSO. 89% of businesses polled reported DSO increases up to 10% or more than before the pandemic. In particular, the survey results indicated a lower efficiency in the collection of long-outstanding receivables of high value, particularly from B2B customers in the agri-food, chemicals and constructions sectors.
Bulgaria favours customer sources when assessing creditworthiness
When asked what type of credit information sources they use to assess the creditworthiness of their B2B customers, most survey respondents (41%) said they rely on internal sources and financial statements. The move towards engaging directly with customers when assessing creditworthiness is a clear trend that became evident during the pandemic. This is possibly caused by a combination of an increased commitment to due diligence along with greater communication between businesses and their customers as both seek to survive the economic downturn.
Once credit information sources are obtained, the creditworthiness indicators favoured by businesses in Bulgaria include the capacity to generate cash (prioritised among those we polled, 23%), followed by customer payment patterns (22%) and customer profitability (20%). Over the next six months, businesses told us they plan to place a stronger focus on customer payment patterns.
This suggests that among the businesses polled in Bulgaria, most believe that trade credit risk will be high going forward. In fact, out of all of the countries in Eastern Europe, Bulgaria has the highest percentage of respondents expressing the opinion that customer creditworthiness will deteriorate in 2021.
Cash payments sought by businesses in Bulgaria
When asked what type of credit management tools they use to minimise the risk of B2B payment default, most of the businesses we polled in Bulgaria (67%) told us they most often request cash payments. This percentage is closely followed by a preference for payment guarantees, as reported by 63% of respondents.
During the pandemic, there was an increase in the use of overdue invoice payment reminders (reported by 45% of respondents), as well a greater use of trade credit insurance (36%). While businesses polled in Bulgaria confirm that they will continue to use these tools to manage their accounts receivable over the next six months, the tendency is to resort to trade debts securitisation (58% of respondents) over the same time frame.
Labour market hit hard by pandemic-led economic crisis
When asked what kind of measures they needed to take to protect their business from the negative impact of the pandemic-led economic crisis, most businesses told us they introduced hiring freezes (48% of respondents). This is the greatest percentage of all of the countries in Eastern Europe and significantly higher than the 33% regional average. 32% of the businesses polled in Bulgaria told us they also planned to reduce the workforce in a bid to cut costs.
Businesses in Bulgaria also told us they took longer to pay suppliers in an attempt to manage their own accounts receivable. The 43% of respondents reporting this is in line with the Eastern Europe average and was the second most often used measure among the businesses we polled.
More businesses in Bulgaria worried about 2021 than anywhere else in region
When looking forward to 2021, the greatest causes of concern for businesses in Bulgaria are falling demand for their products and services, a further deterioration of both the domestic and global economies, and a decrease in international trade. 47% of respondents to our survey told us they were worried about falling demand, this is the highest percentage of all of the businesses we polled in Eastern Europe and significantly higher than the regional average of 41%.
In addition, 47% reported concern about the pandemic-induced economic crisis. This is the highest of the countries polled in the region and well above the regional average of 39%.
This sense of pessimism could also be seen in Bulgaria’s 2021 outlook for the domestic economy (65% of respondents predicted a further deterioration, compared 37% across the region), the global economy (63%, vs. 43% at regional level) and international trade (59%, vs. 39% at regional level).