Main survey results for the Czech Republic
Signiﬁcant drop in number of B2B sales made on credit
When comparing payment practices in the Czech Republic between this year and last year, it is clear to see that the pandemic-induced economic crisis has impacted the country’s approach to B2B credit. During the pandemic, trade credit was used in 51% of the Czech Republic’s B2B sales, a signiﬁcant drop from last year’s 88%. What’s more, nearly 25% of the suppliers polled in the country reported a decrease in the total value of B2B sales transacted on credit during the pandemic compared to before. That said, 47% reported no change in their approach to credit and 30% reported an increase in B2B sales on credit. For those that did report an increase, this was on average 30%. Our survey revealed clear patterns of B2B credit use between segments. Businesses polled in the Czech Republic told us they most often accepted requests for trade credit from their domestic SME customers, and that they did so to encourage sales on the domestic market (67% of respondents).
Businesses polled in the Czech Republic told us they most often accepted requests for trade credit from their domestic SME customers, and that they did so to encourage sales on the domestic market (67% of respondents). Businesses told us that the main reason they turned down requests for trade credit from SMEs was due to the deterioration of the customer’s creditworthiness. This was reported by 40% of respondents, well above the 28% average for the region. Overall although there was a big drop in the number of sales made on credit, the proportion of the total B2B sales value largely maintained a balance between credit requests accepted and those turned down. On average businesses in the Czech Republic turned down nearly 25% of total B2B sales, not far off the nearly 30% increase.
Czech businesses express cautious approach to payment terms
A vast majority of businesses polled (70%) reported setting maximum payment terms of 0-30 days on average. 20% of businesses we surveyed had payment terms of 31 to 60 days and the remaining reported terms from 90 days or above. This results in a 38-day average for payment terms, a week longer than the 31-day average of last year. For the businesses practising more lenient payment terms, most said this was to encourage domestic sales (as reported by 46% of businesses, compared to 37% at regional level).
A similar percentage of respondents (42%) told us that they planned to continue this strategy of supporting domestic B2B sales through more relaxed credit terms for the next six months, despite the heightened credit risk environment. For 67% of the businesses polled in the Czech Republic, payment terms have not changed during the pandemic and 30% have extended terms. Crucially, the majority of businesses told us that they planned to continue using the trade credit policy they adopted during the pandemic for at least the next six months. This is a strong indication that many businesses in the country believe their trading practices will not signiﬁcantly change next year.
Most of the businesses polled in the Czech Republic (58% of respondents) identiﬁed falling demand for their products and services as the greatest challenge to business proﬁtability in 2021.
Atradius Payment Practices Barometer – November 2020
Czech Republic sees signiﬁcant rise in overdue invoices
39% of the total value of B2B invoices issued by businesses in the Czech Republic was overdue during the pandemic. Although this is below the regional average (45%), it represents a significant rise in the percentage of overdue invoices reported before the pandemic (24%last year). This corresponds to an average increase of 63% year-on-year. The increase in late payments caused by the pandemic-led economic crisis is also reflected in the lengthening of DSO.
63% of businesses polled reported DSO increases of up to 10%, and 24% reported increases of more than 10% compared to before the pandemic. The latter, in particular, may indicate lower efficiency in the collection of long-outstanding receivables of high value. On a more positive note, write-offs halved to 4% of the total value of B2B invoices, down from 8% last year. However, this reduction may be a reflection of the drop in credit-based sales and, correspondingly, the amount of receivables at risk from payment defaults.
Businesses largely optimistic about customer credit-worthiness in 2021
On the whole, the businesses we polled in the Czech Republic felt that their customer creditworthiness would improve in 2021 (48% versus 30% who felt it would deteriorate). When asked what type of credit information sources they customarily use to assess B2B customer creditworthiness, most survey respondents (48%) said they rely on ﬁnancial statements. 44% told us they use credit information supplied by the customer and, of these, most told us they increased their focus on credit checks following the onset of the pandemic.
In addition, the businesses we polled stated they complemented these sources with trade references. Once credit information has been obtained, the businesses we polled told us they ﬁrst look at their customer payment patterns, followed by an assessment of customer proﬁtability. Over the next six months, however, businesses reported that they would complement this approach with a stronger focus on the ability of their customers to generate cash and demonstrate ﬁnancial ﬂexibility.
Overdue payment reminders favoured by businesses in Czech Republic
When asked what type of credit management tools they use to minimise the potential impact of payment defaults on their business, 61% respondents in the Czech Republic told us that they most often use payment reminders for their B2B customers. Running a close second to this with 58% of respondents, is the commitment to absorb debts in-house with so called self-insurance.
During the pandemic, guarantees of payment were requested more often (as reported by 51% of businesses) with the same percentage reporting the use of credit insurance. While businesses polled in the Czech Republic conﬁrm that they will continue to use these tools to manage their accounts receivable over the next six months, nearly half of them reported that they will also consider using credit insurance over the same time frame.
Businesses frequently delay payments to suppliers to maintain cash ﬂow
When asked what kind of measures they needed to take to protect their business from the negative impact of the pandemic-led economic crisis, the most frequent response was to delay payment to their own suppliers (39%).
The second most commonly reported measure used by businesses in the Czech Republic was reducing the workforce (32%).
Most businesses in the Czech Republic optimistic about domestic economy in 2021
More respondents to the Payment Practices Barometer survey told us they believe the domestic economy wil improve over the next six months (54%) than deteriorate (35%). When asked their view about the global outlook, the respondents were almost equally split, with 44% expecting to see an improvement in the global economy and 41% expecting it to deteriorate. A majority of respondents (40%) also reported feeling more optimistic about an improvement in international trade in 2021.
When asked about the greatest challenges they faced to business proﬁtability in 2021, most of the businesses polled in the Czech Republic identiﬁed falling demand for their products and services. This was reported by 58%of respondents, the highest in Eastern Europe). A potentially prolonged pandemic-induced economic crisis (41%), and difﬁculties in containing costs (37%) were also cited as causes of concern by the businesses we polled in the Czech Republic.