Main survey results for Romania
Poor payment behaviour is leading reason for refusal of trade credit
Trade credit is currently involved in 58% of the B2B sales of businesses surveyed in Romania, down from last year’s 78%. Businesses told us that the main reason they turned down requests for trade credit was because of an increase in poor payments behaviour by customers (often within the SME segment). 40% of businesses we spoke to in Romania cited this, slightly higher than the 34% of survey respondents who said the same in Eastern Europe overall. In addition, and no doubt a reﬂection of the difﬁcult trading conditions caused by the pandemic in many countries, a sizeable portion of businesses also said they turned down requests for trade credit due to the high levels of economic risk in their customers’ locations. 36% of the survey respondents among the exporting businesses told us this.
Turning down requests for trade credit was not the whole story in Romania. 27% of the suppliers polled in the country reported an increase in the total value of B2B sales transacted on credit during the pandemic, compared to before the pandemic (averaging an increase of 51% of total sales value), while for 48% of survey respondents there was no change. A quarter of businesses polled (25%) reported a decrease in B2B sales on credit (averaging 24%of total sales value). Where businesses reported an increase in the amount of trade credit they offered during the pandemic, the majority of the sales were to B2B customers in the SME segment. They told us that they offered the credit to encourage sales on the domestic market (47% of respondents). 30% of the respondents, however, accepted requests for trade credit to provide ﬁnancial suppport to their B2B customers.
Longer payment terms offered in attempt to grow Romanian B2B sales
Just under half of the businesses we surveyed in Romania (44%) told us that during the pandemic they offered longer payment terms to customers, especially those on the domestic market. On average, they offered up to 15 days longer than the results of our pre-pandemic survey. Survey respondents told us this was chiefly to encourage domestic sales. A majority (62%) of the businesses surveyed in Romania reported setting payment terms up to 30 days on average. 23% of respondents set payment terms between 31 and 60 days, 7% offered 61 to 90 days and the remaining 8% set payment terms of more 90 days.
This results in a 51-day average payment term, up from last year’s 40-day average. 46% of respondents reported no change in payment terms. Over the next six months, businesses in Romania told us they will continue to apply the same trade credit policy they have applied during the pandemic. This includes offering more relaxed payment terms than before the pandemic to support sales on the domestic market. This was reported by 48% of respondents in Romania, and represents the highest percentage in Eastern Europe, significantly higher than the 35% of respondents in the region overall.
Looking ahead to 2021, far fewer businesses polled in Romania (38%) believe that the global economy will improve next year those expecting it to deteriorate (52%).
Atradius Payment Practices Barometer – November 2020
Overdue invoices in Romania increase by 74% compared to pre-pandemic levels
During the pandemic, 47% of the total value of B2B invoices issued by businesses we polled in Romania was reported to be overdue. This is slightly above the 45% regional average, but more significantly it is up from 27% last year, an important benchmark as it offers pre-pandemic insight. This corresponds to an average 74% year-on-year increase and shows a stark difference between pre and post pandemic levels. 38% of the survey’s respondents reported they had to wait up to a 21 days on average to cash in overdue invoices. 10% of the respondents (largely among the SME segment, as well as some medium sized businesses in the distribution sector) reported quicker invoice-to-cash turnaround during the pandemic compared to before the pandemic.
The increase in late payments caused by the pandemic-led economic crisis is reflected in the lengthening of DSO. 51% of businesses polled reported DSO increases of up to a 10% maximum. 33% of businesses reported increases of more than 10% compared to before the pandemic. DSO stands now at a 76-day average (lower than the 103-days average for Eastern Europe overall).
Write offs are currently lower than this time last year (8% of the total value of B2B invoices compared to 13% last year). This is likely to be because some long overdue invoices will still be in progress and not yet written off. This figure may also be a reflection of the significant drop in credit-based sales.
Businesses in Romania work closely with customers to assess creditworthiness
When asked what type of credit information sources they normally use to assess their B2B customers’ creditworthiness, most of the businesses we polled in Romania (58%) said they rely on financial statements. After the onset of the pandemic, they told us that they placed greater focus on information obtained directly from the customer (47% of respondents). This could be because the customer information is likely to be more up-to-date and therefore more reliable in such a volatile and uncertain business and insolvency environment as that created by the rapid onset of the pandemic recession.
Once credit information sources are obtained businesses in Romania told us that they normally assess the customer’s payment history first and they look at whether the customers appears to have a healthy financial position.
After the onset of the economic crisis triggered by the pandemic, businesses polled in Romania told us they started to place a stronger focus on the customer’s financial flexibility. This is primarily because financial flexibility is an indicator of the customer’s ability to weather fluctuations in its business performance due to shifts in the business environment. The businesses we polled in Romania told us that they intend to keep on monitoring these three indicators in particular over the next six months. Slightly more businesses polled in Romania (55%) than in Eastern Europe overall (52%) are of the opinion that their customers’ creditworthiness and payment habits will improve in 2021.
70% of businesses in Romania consider credit insurance for 2021
When asked what type of credit management tools they normally use to minimise the risks associated with customer payment default, a significant proportion of the businesses polled in Romania (65%) reported that they normally offer discounts for early payment of B2B invoices. 52% of businesses request guarantees of payment, and nearly 60% engage in sending overdue payment reminders. Since the start of the pandemic, a sizeable percentage of businesses in Romania have increased requests for letters of credit from their B2B customers (44%).
A similar proportion (43%) began to decrease their dependence on large, single buyers, in an attempt to avoid risk concentration in their credit sales ledger. Over the next six months, most of the businesses we spoke to said they plan to request payment guarantees and send outstanding invoice payment reminders, (73% each). In addition, the same percentage told us they are considering securitisation of their trade receivables and 70% of respondents reported considering employing trade credit insurance over the same time frame.
Greatest challenge for businesses in 2021: containing costs
When looking forward to 2021, significantly more respondents in Romania (47%) than in Eastern Europe overall (37%) told us that containment of costs is the greatest challenge to business profitability. This trend is also apparent with other issues where businesses in Romania appear more concerned than their peers in Eastern Europe. For example, 41% of survey respondents in Romania expressed concern about the collection of outstanding invoices and the possibility that the recession will continue during 2021. However, the percentage of businesses that share the same concerns is lower in Eastern Europe (with 36% and 39% respectively). When asked for their views on the outlook for businesses in Romania in 2021, opinion was divided. 46% of businesses in Romania believe the domestic economy will improve next
year and 45% believe it will deteriorate. This latter is the second highest percentage of respondents across Eastern Europe that has such a negative view of their own domestic economy, after Bulgaria with 65%. In fact, Romania remains in step with much of the opinion expressed in Bulgaria, mirroring many of the replies we received about both the global economy and international trade. Just 38% of businesses in Romania believe the global economy will improve next year and 52% expect it to deteriorate. This is the second highest percentage of survey respondents with this opinion in Eastern Europe, after Bulgaria with 63%. 38% believe international trade will improve and 48% expect it to deteriorate. This latter is the second highest percentage of respondents with this opinion in Eastern Europe, after Bulgaria with 59%.