Survey findings for Germany

One third of businesses offer more credit after onset of pandemic

Trade credit is involved in 51% of the B2B sales of the businesses surveyed in Germany (compared to 55% in the region overall). 34% of the businesses reported an average 30% increase in the total value of their B2B credit sales after the onset of the pandemic compared to before. For 56% there was no change. Just 10% of the businesses surveyed in Germany reported a decrease in B2B sales on credit.

Interestingly, the focus for trade credit in Germany appears to be on the domestic market. 41% of businesses reported that they most often accepted requests for trade credit from SME B2B customers in order to stay competitive on the domestic market. This is notably higher than the 29% reported in Western Europe overall. 34% of the survey respondents granted trade credit to provide B2B customers liquidity support as they were facing financial distress; again this is much higher than the regional average of 19%.

Most trade credit request refusals were made to SME export customers. The reason for turning down the request was most commonly due to an increased risk of payment default in the customer’s county. This was reported by 33% of survey respondents (regional average: 30%). On average, trade credit refusals amounted to nearly 20% of the total B2B sales value.

This pattern of increasing trade credit for the domestic market and decreasing the amount provided for export customers is a trend that emerged after the start of the pandemic. On the domestic market higher value requests for credit were accepted more often, whereas on the export market, more requests were turned down (leading to a lower value overall). This may suggest that following the onset of the global recession, the perception of the risk of payment default arising from domestic sales is different to the perception of risk associated with foreign trade.

Over the coming months, 40% of the businesses surveyed in Germany (higher than the 30% at regional level) told us they would accept more requests for trade credit from their B2B customers to encourage domestic sales and stay competitive on the domestic market.

This further indicates the changes we observed in trade credit policies that occurred after the start of the pandemic are part of a new trend, chiefly to sustain the domestic market.

41%

of businesses reported that they most often accepted requests for trade credit from SME B2B customers in order to stay competitive on the domestic market. This is notably higher than the 29% reported in Western Europe overall.

Atradius Payment Practices Barometer – November 2020

Radical changes to payment terms see significant growth in the number of days of credit offered

Payment terms have undergone a significant upheaval in Germany following the start of the pandemic lockdowns and economic downturn. The country currently has average payment terms of 92 days. This is significantly longer than last year’s 22-day average and notably higher than the 46-day average for Western Europe.

This 92-day average is largely a reflection of lenient credit policies applied by small businesses operating in the manufacturing sector; chiefly in the chemicals and steel/metals industries. The majority of businesses told us they offered more lenient credit terms to stay competitive on the domestic market.

Last year, the majority of businesses in Germany (94%) offered payment terms of up to 30 days. This year that figure has plummeted to 44%. Significantly, there has been an unprecedented growth in the number of businesses setting payment terms of 90 days or more. This has grown to 43% from just 10% last year. 13% of businesses report offering terms of 31 to 90 days. Overall, 46% of the survey’s respondents told us that B2B payment terms grew longer during the pandemic, and are currently up to one month longer than last year.

For half of the businesses we surveyed in Germany, B2B payment terms remained stable compared to pre-pandemic levels. Only 4% of respondents reported asking B2B customers to pay invoices on average 15 days earlier than last year.

This new trend towards offering longer payment terms presents some interesting possibilities. On the one hand, the increased use of B2B trade credit could help support businesses suffering from liquidity issues brought on by the pandemic recession and could have a positive impact on business relations between two companies. On the other hand, statistics have shown that the longer an invoice remains unpaid, the greater the risk of payment default is. In addition, offering trade credit to a wider customer base has an inherent risk that credit may be extended to customers with poor credit quality – particularly against the background of the governments' aid packages to stabilise the economy. These measures – together with low interest rates – have also kept a number of firms alive which under normal conditions would no longer be able to survive on the market. This allows suppliers to work with companies that are already insolvent without even knowing it, thus increasing the likelihood of default.

Germany experiences significant increase in late payments

Late payments in Germany have grown to 53%, up from 32% last year and above the 47% average for Western Europe. This corresponds with an average 65% increase year-on-year. It also suggests businesses maybe experiencing a significant increase in costs to pay for the financing and administration associated with carrying trade debts. On average, 40% of respondents in the country reported they had to wait up to 30 days longer than last year to turn overdue invoices into cash.

An average of 7% of the total value of B2B receivables was written off as uncollectable after the onset of the pandemic (in line with the proportion for Western Europe). 8% of the total value of B2B receivables was re- ported to still be outstanding at 90 days overdue. This indicates that, on average, businesses in Germany have lost around 90% of the value of their B2B receivables that were not paid within 90 days.

The increase in late payments caused by the pandemic-induced economic crisis is also reflected in the lengthen- ing of DSO. 53% of the businesses surveyed in Germany reported DSO increases of up to 10%, with 41% reporting increases of more than 10% compared to before the pandemic. A notably lower percentage of businesses (7%) reported shorter DSO compared to before the pandemic.

In particular, 32% of respondents reported average DSO between 1 and 30 days, 25% from 31 days to 90 days and a staggering 43% reported average DSOs of 90 days or more. This results in an average DSO for Germany of 150 days (compared to 98 days for the region). This figure is heavily influenced by the long DSOs reported by medium-sized businesses belonging to the SME segment, operating in the services sector and both the steel/metals and transport industries.

Businesses in Germany spent a lot more on chasing overdue invoices than last year

Due to the increase in payment defaults, businesses surveyed in Germany told us they took protective measures to avoid suffering liquidity shortages. 56% of businesses most frequently increased the amount of time, costs and resources spent on managing outstanding receivables (regional average: 37%). 45% of respondents told us that they pursued additional financing from external sources (compared to 23% at regional level).

Against this background, we asked businesses in Germany what type of credit information sources they customarily use to assess their B2B customers’ creditworthiness. 60% said that prior to the pandemic they normally relied on financial statements, 54% on bank references and 49% on trade references. However, after the onset of the pandemic, they increased their sourcing of credit information directly from the customers (41% of respondents), and they did so more frequently than accessing bank references.

To evaluate a customer’s credit quality during the economic crisis, businesses in Germany reported they focused on: profitability, ability to generate cash and financial flexibility. This latter is the area that businesses told us they plan to focus on over the coming months as businesses try to assess a customer’s ability to cope with the unpredictable shifts of the economic and business environment.

Within the context of the uncertain business environment caused by the pandemic we asked businesses if and, if so to what extent, they changed their credit management policies following the onset of the pandemic. The most (49%) told us they made more extensive use of credit insurance. 47% of respondents told us that after the onset of the pandemic they started to retain and manage the risk of customer payment default internally through self-insurance.

To evaluate a customer’s credit quality during the economic crisis, businesses in Germany reported they focused on: profitability, ability to generate cash and financial flexibility. This latter is the area that businesses told us they plan to focus on over the coming months as businesses try to assess a customer’s ability to cope with the unpredictable shifts of the economic and business environment.

Within the context of the uncertain business environment caused by the pandemic we asked businesses if and, if so to what extent, they changed their credit management policies following the onset of the pandemic. The most (49%) told us they made more extensive use of credit insurance. 47% of respondents told us that after the onset of the pandemic they started to retain and manage the risk of customer payment default internally through self-insurance.

This is significantly higher than the 21% who said they opted for self-insurance last year. 41% of respondents in this year’s survey told us that they have begun sending outstanding invoices to collection earlier than before the pandemic. 48% told us they resorted to factoring or to the services of a specialist debt collection agency.

Over the coming months, however, self-insurance appears to be the credit management technique favoured by most of the respondents in Germany (71%). Around 55% of respondents told us they plan to offer discounts for early payment of invoices (compared to last year’s 36%). 55% also told use they intend to avoid credit risk concentrations in their credit-based B2B sales ledgers (up from 22% last year).

Businesses in Germany manage to contain any negative impact on cash flow

43% of respondents in Germany told us that that revenue had been negatively impacted by the economic crisis. 38% of businesses, particularly in the machines industry, said their sales volume had taken a hit. However, in- terestingly and bucking the trend seen across Western Europe, most survey respondents in Germany told us they had managed to contain any negative impact on cash flow.

This was reported by 38% of respondents in Germany, versus an average of in Western Europe 25%. This may be due to the additional measures businesses took to collect outstanding debts and support liquidity.

Most businesses believe customer creditworthiness will improve next year

55% of the businesses surveyed in Germany told us they felt their customers’ creditworthiness would improve next year, significantly more than those who felt otherwise (23%). For 22% of respondents, customer creditworthiness will not change.

This sense of optimism can also be seen in attitudes towards the domestic and global economies and international trade. 70% expects the domestic economy to improve (regional average: 57%), with just 19% expecting it to get worse. 60% is optimistic about the global economy (regional average: 45% optimism) and 30% in Germany is pessimistic. In regards to international trade, 54% of businesses expressed optimism (regional average: 49%) and 26% pessimism.

The majority of businesses told us that the greatest threats to business profitability in 2021 include: maintaining adequate cash flow (reported by 42% of respondents in Germany and 38% in Western Europe), cost containment (reported by 40%), collection of outstanding invoices (32%) and potential restrictions to bank finance (32%).

43%

of respondents in Germany told us that that revenue had been negatively impacted by the economic crisis.

Atradius Payment Practices Barometer – November 2020

Western Europe: top 4 measures to manage liquidity issues due to the impact of the pandemic

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