Overview of payment practices

By industry: impact of the COVID 19-induced economic crisis on industries

Chemicals

Late payments and cash flow

  • Late payments in the Danish agri-food industry affect 42% of the total value of B2B invoices (significantly up from last year’s 22%). 35% of respondents reported having to wait longer to cash in overdue invoices, up to 16 days on average. For 48%, there was no change in the average invoice-to-cash turnaround, while the remainder cashed in overdue invoices earlier than before the pandemic.
  • Average DSO increases of up to 10% were reported by 68% of respondents (regional average for the industry: 57%). 17% reported increases of above 10% (regional average: 23%). Currently DSO stands at a 90-day average. This is below the 108-day average for the industry in Western Europe.
  • 47% told us their revenue was negatively affected by the pandemic downturn. 23% reported a positive impact. This is in line with the regional average: 52% negative, 23% positive. No impact on cash flow was reported by 46% of businesses (regional average: 36%) and positive impact by 27% (same as the regional average).
  • To avoid liquidity shortages, around 25% of businesses undertook each the following measures: spending more time and resources on chasing unpaid invoices (regional average: 37%), delaying payment of suppliers (regional average: 45%) and enacting hire freezes (regional average: 27%).

Approach to credit quality assessments

  • The industry has not changed the way it approaches credit checks compared to pre-pandemic times. The focus is on information provided directly from B2B customers, along with financial statements, and bank and trade references
  • The industry gives priority to evaluating the customer’s past payment history and ability to generate cash. The majority told us they would continue to monitor these areas over the coming months, along with the customer’s profitability and ability to withstand unexpected shifts in the business and economic environment.

Approach to credit management

  • Self-insurance and requests for payment guarantees are the credit management techniques most favoured by the industry. Following the pandemic outbreak, most businesses in the industry approached self-insurance for the first time and sent more outstanding invoice reminders. Over the coming months, businesses plan to use credit insurance request cash payments.
  • 44% of respondents expect to see improvement in customer creditworthiness, while only 8% expect deterioration. This compares to 54% in Western Europe expecting improvement and 16% expecting deterioration.
  • 44% of the industry considers the greatest challenge to profitability in 2021 to be containment of costs. This compares to 42% with the same concern at regional level.

2021 industry outlook

  • 54% of respondents expect the domestic economy to improve over the next six months (regional average: 57%). 21% expect it to get worse (regional average: 27%). Respondents are divided about the outlook for the global economy with 40% each anticipating improvement and deterioration. A brighter future for international trade is expected (52% optimistic, 22% pessimistic).

Construction

Late payments and cash flow

  • Late payments affect 50% of the total value of B2B invoices in the Danish construction materials industry (up from last year’s 28%). 57% reported having to wait longer to turn overdue invoices into cash, up to 25 days past the due date on average. 36% reported no change in average invoice-to-cash turnaround, and the remainder cashed in overdue invoices earlier than before the pandemic.
  • Average DSO increases of up to 10% were reported by 35% of the businesses polled (regional average: 64%). Increases of DSO above 10% were reported by 58% of businesses (regional average: 31%). Currently DSO stands at a 40-day average (compared to the 91-day average for Western Europe).
  • 20% of respondents told us they experienced liquidity issues due caused by the pandemic (regional average: 32%). 40% reported revenue loss (lower than the 47% reported at regional level).
  • To keep operating costs under control following the pandemic outbreak, 37% of the industry enacted hiring freezes (regional average: 22%) and 32% laid off staff (regional average: 34%).

Approach to credit quality assessments

  • Businesses told us they sourced credit information directly from customers more often following the onset of the pandemic. Looking ahead, they plan to use this alongside customer financial statements, bank references and trade references.
  • When assessing creditworthiness, the industry focuses on their customers’ ability to generate cash and borrowing capacity. They plan to retain the same approach over the coming months, adding assessments of their customers’ financial flexibility and ability to withstand unexpected shifts in the business and economic environment.

Approach to credit management

  • Respondents told us they most often resorted to self-insurance against bad debt and requested payment guarantees from customers to avoid credit risk. Following the pandemic outbreak they also used factoring and reduced reliance on a single buyer more often. Over the coming months, businesses plan to follow the same approach, in addition to adopting trade debt securitisation.
  • 34% of respondents expect their customers’ creditworthiness to improve over the coming months (regional average: 39%). Just 10% expect to see deterioration (regional average: 28%).
  • 44% of industry considers containment of costs to present the greatest challenge to profitability in 2021. 40% believe fall in demand will pose the greatest challenge (regional average: 34%).

2021 industry outlook

  • 76% expects the domestic economy to improve over the next six months (regional average: 51%). Only 8% expects it to get worse. Optimism about the outlook for the global economy is expressed by 60% of respondents (compared to 40% at regional level). 63% anticipate a brighter outlook for international trade over the coming months (regional average: 47%).

Consumer durables

Late payments and cash flow

  • Late payments in the consumer durables industry affect 40% of the total value of B2B invoices (compared to last year’s 27%). 41% of respondents reported having to wait longer to cash in overdue invoices, up to two weeks on average. For 44%, there was no change in the average invoice-to-cash turnaround, while the remainder cashed in overdue invoices earlier than before the pandemic.
  • Average DSO increases of up to 10% were reported by 66% of businesses (regional average: 51%). Increases of more than 10% were reported by 14% of businesses (regional average: 38%). Currently DSO stands at a 43-day average (lower than the regional average of 61 days).
  • 41% told us their revenue was negatively affected by the pandemic (regional average: 49%). 22% reported a positive impact (regional average: 33%). 24% reported negative effects on cash flow (regional average: 42%) while 22% said they had experienced a positive impact (regional average: 32%).
  • To contain costs, 43% of respondents laid off staff (regional average: 33%). 42% pursued external financing (regional average: 22%).

Approach to credit quality assessments

  • Following the onset of the recession, businesses told us they continued to follow the same approach to customer credit assessments as before the pandemic. Credit information sourced directly from the customer, alongside financial statements and trade references, are currently the most frequently used sources.
  • The industry prioritises evaluating the customer’s financial flexibility, borrowing capacity and ability to generate cash. Businesses polled in the industry say this approach will remain unchanged over the coming months.

Approach to credit management

  • The industry told us their credit management practices now chiefly include offering discounts for early payment of invoices and the use of credit insurance. Nearly half of respondents in the industry said they approached credit insurance for the first time due to the pandemic outbreak. Many resorted to factoring more often. Over the coming months, they plan to continue with this approach in addition to resorting to self-insurance more frequently.
  • 37% of industry respondents (regional average: 50%) believe their B2B customers’ creditworthiness will improve over the coming months. 26% expect it to deteriorate (regional average: 23%).
  • 69% of respondents believe that the effective collection of outstanding invoices presents the greatest challenge to profitability in 2021 (regional average: 44%)

2021 industry outlook

  • 64% of respondents expect the domestic economy to improve over the next six months (regional average: 57%). Only 6% expect it to deteriorate (regional average: 25%). The majority of businesses are optimistic about the outlook for the global economy (33% optimistic, 26% pessimistic) and international trade (37% optimistic, 8% pessimistic).

Transport

Late payments and cash flow

  • Late payments in the transport industry affect 55% of the total value of B2B invoices (compared to last year’s 24%). 31% of respondents reported having to wait longer to cash in overdue invoices, up to 20 days longer on average. For 54% of respondents, there was no change in average invoice-to-cash turnaround, while the remainder said they cashed in overdue invoices earlier than before the pandemic.
  • 53% reported DSO increases of up to 10%, while 29% reported increases of more than 10% compared to before the pandemic. Currently DSO stands at a 127-day average (compared to the 134-day average in Western Europe).
  • 54% told us economic crisis had a negative impact on their revenue (regional average 56%). 23% reported a positive impact (regional average: 17%). 23% reported a negative impact on cash flow, lower than the 36% in Western Europe
  • To contain liquidity shortages, 41% of businesses told us they delayed payments to suppliers (regional average: 30%). 39% enacted hiring freezes (regional average: 21%).

Approach to credit quality assessments

  • After the pandemic outbreak, businesses paid closer attention to the evaluation of credit information provided directly by the customer and bank references than before. They continued to monitor their customers’ financial statements and past payment histories.
  • The sector gives priority to evaluating the customer’s ability to generate cash and its financial flexibility. This approach will remain unchanged over the coming months, but will be complemented by assessments of the customer’s borrowing capacity.

Approach to credit management

  • Following the onset of the pandemic, the industry told us they strengthened their credit management practices by resorting to self-insurance, requesting payment guarantees or payment in cash. Over the coming months businesses plan to follow the same approach, complementing it with the adjustment of credit terms and a quicker debt collection process.
  • 59% of respondents expect their B2B customers’ creditworthiness to improve (regional average: 40%). Only 4% expect it to deteriorate over the coming months (regional average: 29%).
  • 39% of respondents believe that bank-lending restrictions present the greatest challenge to profitability next year (regional average: 31%). Disruptions to the supply chain ranks second (reported by 55% of respondents in Denmark, higher than the 35% at regional level).

2021 industry outlook

  • 54% of respondents expect domestic economy to improve over the coming months (regional average: 52%). 24% expect it to get worse (regional average: 34%). The industry expects a bright outlook for the global economy (50% optimistic, 31% pessimistic) and international trade (55% optimistic, 12% pessimistic).

Machines

Late payments and cash flow

  • Late payments affect 46% of the total value of B2B invoices in the Danish machines industry (a significant increase on last year’s 29%). 50% of survey respondents reported having to wait longer to cash in overdue invoices, up to 20 days longer on average. 37% reported no change in average invoice-to-cash turnaround, while the remainder told us they converted overdue invoices into cash earlier than before the pandemic outbreak.
  • Average DSO increases of up to 10% were reported by 37% of the industry (regional average: 41%). 56% reported increases of more than 10% (in line with the regional average). Currently DSO stands at a 200-day average (above the 110-day average for the industry in Western Europe).
  • 38% of businesses revealed they experienced liquidity shortages due to the economic crisis (regional average: 42%). 18% reported cash flow to be positively impacted (lower than the 32% regional average). Revenue loss was reported by 54% of respondents in Denmark (52% at regional level).
  • To safeguard liquidity levels, 41% of businesses pursued additional financing from external sources (regional average: 27%).

Approach to credit quality assessments

  • After the onset of the economic crisis, the industry changed the way they approached credit checks, sourcing information directly from B2B customers more. Cus- tomer information, financial statements and credit reports from specialist credit agencies are now the most common sources for creditworthiness assessments.
  • When assessing creditworthiness, priority is given to the evaluation of the customer’s borrowing capacity, profitability and financial flexibility. The majority of the industry reports that they will continue to monitor these key areas over the coming months.

Approach to credit management

  • Following the onset of the economic crisis, respondents told us their credit management practices included self-insurance, factoring, trade debt securitisation and avoidance of credit risk concentration in their sales ledger. Over the coming months, businesses told us they plan to continue with this approach, in addition to making wider use of trade credit insurance.
  • 61% of industry respondents believe their customers’ creditworthiness will improve next year and only 7% believe it will deteriorate. At regional level 55% believe it will improve, and 19% believe it will deteriorate.
  • 71% of the industry believes containment of costs presents the greatest challenges to profitability in 2021 (regional average: 48%) 47% of respondents believe fall in demand will be the greatest challenge (regional average: 38%).

2021 industry outlook

  • The Danish machines industry is optimistic about the domestic economy (78% expect it to improve, 22% to remain the same and none believes it will deteriorate). 72% expects international trade to improve and 18% expects deterioration. 50% of respondents expect the global economy to get better and 25% to get worse.

Download the report

Can we help you with information about other questions you have about managing your receivables?

Share this article

Continue reading