Survey findings for Spain
Trade credit used to grow sales on domestic market
55% of the businesses we surveyed in Spain reported that they use trade credit to encourage sales on the domestic market, especially among SMEs. Largely in line with the regional average of 53% this reflects a widely adopted approach to stimulating sales. 26% of respondents said they offered credit to stay competitive, while 20% did so to provide short-term finance.
Showing little change from last year, trade credit is currently involved in nearly 60% of sales (average for Western Europe: 55%). 40% of the businesses surveyed told us that the total value of their credit sales increased by nearly one third since the onset of the pandemic compared to before. For 43% there was no change. A significantly lower percentage of the businesses polled (17%) reported a decrease in the total value of B2B credit sales.
A decline in a customer’s payments behaviour is the primary reason for refusing trade credit requests by businesses. This was reported by 38% of respondents in Spain, a higher percentage than the regional average of 24%.) 30% of requests were refused from export customers (mainly in the SME segment) due to a deteriorating credit risk landscape in their country. Interestingly, only 2% of businesses said they turned down credit requests due to lack of credit assessment data.
This is the lowest percentage in the region and is significantly lower than the 17% regional average. On average, credit refusal corresponds with nearly one third of the total B2B sales value and is almost stable compared to last year.
Businesses extend payment terms to encourage sales and offer short-term finance
Reflecting the primary reason for offering trade credit, 33% of businesses across Spain told us that the main reason why they offered extended payment terms was to encourage sales on the domestic market. This was closely followed by 29% of businesses that told us they lengthened terms in order to provide short-term financing for customers in financial distress (a little more than the 23% regional average).
58% of respondents reported granting payment terms of up to 30 days longer due to the economic pressures arising out of the pandemic restrictions. More businesses reported this in Spain than any other country in Western Europe, where the regional average is 47%. This can be seen in the average number of days offered on credit.
After the start of the pandemic, average payment terms for Spain were 55 days. Last year, this figure was 48 days. Only 4% of the businesses reduced terms following the onset of the pandemic. The remaining respondents reported no change.
65% of businesses reported setting payment terms up to a maximum of 30 days on average. 16% of businesses set terms between 31 and 60 days. 8% set terms from 61 to 90 days and the remaining 11% offered terms from 90 days or longer, an increase on pre-pandemic levels where only 8% offered such long terms.
Looking ahead, more than one third of businesses intend to apply the same trade credit policy they have been using during the pandemic.
Most businesses in Spain predict the greatest threats to business profitability in 2021 to include maintaining adequate cash flow, the effective collection of outstanding invoices and the containment of costs (reported by 43%, 43% and 40% respectively).
Despite the uncertainties of the pandemic more businesses expressed optimism than pessimism about the outlook for their customers’ creditworthiness in 2021.
Atradius Payment Practices Barometer – November 2020
More than half of invoices remain unpaid at due date
Following the onset of the pandemic, 52% of the total value of B2B invoices in Spain was overdue (regional average: 47%). This represents a year-on-year increase of 73% (last year, 30% of invoices were overdue).
The longer receivables remain unpaid, the lower the likelihood of collecting them. 46% of respondents in Spain (higher than the 39% in Western Europe overall) told us they had to wait on average 34 days longer than last year to turn overdue invoices into cash. This is substantially longer than the 14 days reported last year and notably higher than the current 22-day average for Western Europe overall.
Following the start of the economic downturn an average of 5% of the total value of B2B receivables was written off as uncollectable. This is more than double of last year’s figure of 2.4%, although still below the 7% average for Western Europe. In addition, 19% of the total value of B2B receivables was still unpaid at 90 days representing a loss of one quarter of the total value of B2B receivables. This increase in late payments can also be seen in the lengthening of DSO. 54% of businesses reported increases in DSO of up to 10%. Increases of more than 10% were recorded by 41% of businesses. Only 5% reported a reduction in DSO compared to before the pandemic.
Almost half of businesses suffer cash flow difficulties
48% of businesses polled told us they experienced cash flow difficulties following the economic downturn (regional average: 38%). Possibly in a bid to address this, 42% of respondents increased the amount they spent on costs, time and resources to collect outstanding invoices (higher than the regional average of 37%).
In addition 33% delayed paying their suppliers (in line with industry averages), 30% laid off staff and 30% enacted hiring freezes (regional average 26% respectively). Thus the deterioration of the payments environment in Spain since the onset of the pandemic appears to have had a greater impact on the labour market, on average, than on the rest of Western Europe.
Businesses source credit information directly from customers more often
We used this survey to ask businesses what type of credit information they customarily used to assess customer creditworthiness. We compared this to last year’s data to assess behaviour both before and after the onset of the pandemic.
48% of the businesses surveyed in Spain said they used to rely on their customers’ financial statements (regional average: 41%), as well as on bank references and credit information obtained directly from the customer (37% for each). However, since the onset of the pandemic, 42% told us they sourced credit information directly from the customers more often (regional average: 38%).
In addition, 33% reported using credit checking agencies (regional average: 23%) and 30% checked trade references more frequently than before the pandemic (regional average: 25%).
When assessing credit quality, businesses reported focusing on customer profitability and their ability to generate cash. Looking ahead they told us that they plan to assess the financial flexibility of their customers and their ability to cope with the unpredictable shifts of the economic and business environment.
Credit insurance favoured by majority of businesses for 2021 credit management
We asked businesses whether the pandemic caused them to change their approach to credit management. Many did alter their strategies. Prior to the start of the pandemic, the majority of respondents favoured payment guarantees (as reported by 70%). 41% told us that they requested payment guarantees more often after the onset of the pandemic and 60% said they plan to continue using them over the coming months.
Interestingly, looking ahead, credit insurance is the most favoured of all of the credit management techniques, with more businesses committing to its use over the coming months than any other.
62% told us they plan to use trade credit insurance next year (higher than the regional average of 47%). This is followed by 60% planning to use payment guarantees and 57% relying on cash payments. Prior to the onset of the pandemic 56% of Spanish businesses used credit insurance, higher than the average for Western Europe of 45%.
Although 37% of respondents reported turning to self-insurance after the start of the pandemic, only 34% reported using it more often at this time. This is lower than the 37% that told us they used credit insurance more often and 48% that used securitisation more often following the onset of the pandemic.
Future of cash flow tops businesses concerns for 2021
Most businesses in Spain predict the greatest threats to business profitability in 2021 to include maintaining adequate cash flow, the effective collection of outstanding invoices and the containment of costs (reported by 43%, 43% and 40% respectively). Despite the uncertainties of the pandemic more businesses expressed optimism than pessimism about the outlook for their customers’ creditworthiness in 2021 (51% optimistic versus 7% pessimistic, with a regional average of 47% favouring an improvement in customer credit ratings). 23% of respondents foresee no change (regional average: 29%).
A slightly more muted sense of optimism could be seen in the survey responses to questions about the domestic and global economies. 50% of respondents expect the domestic economy to improve next year (regional average: 47%); 42% expects a decline (regional average: 27%). However, just 44% anticipate the recovery of the global economy, with the same percentage predicting a decline. Attitudes towards international trade were a little more upbeat, with 48% predicting growth and 39% deteriora- tion.