Survey findings for Ireland
More than half of B2B sales in Ireland involve trade credit
Trade credit is currently involved in 58% of the B2B sales of the businesses surveyed in Ireland. This compares to the 55% average for Western Europe. 38% of the businesses surveyed reported an average one quarter increase in the total value of their credit sales compared to before the pandemic. 55% of the businesses reported no change. Just 7% of respondents reported a decrease in credit sales. 61% of businesses told us that they accepted trade credit requests from businesses of all sizes to encourage sales on the domestic market (regional average: 53%).
Most credit refusals were mainly directed towards SMEs customers in foreign markets. 34% of credit request refusals were due to a high insolvency risk in the customer’s country (higher than 30% regional average). On average, requests for trade credit that were turned down corresponded to nearly 30% of the total sales value.
Payment terms hold steady as businesses maintain credit policies
78% of the businesses surveyed reported setting payment terms up to 30 days on average. 11% set payment terms from 31 to 60 days, 8% set terms from 61 to 90 days and the remaining 4% from 90 days and above. 48% of respondents reported granting longer payment terms following the start of the pandemic, most often up to 10 days longer (compared to 47% in Western Europe). 48% reported no change, while 4% shortened terms compared to before the pandemic, on average 10 days earlier than last year.
With the majority of businesses reporting no change, the 32-day average payment terms for the country are largely in line with last year’s 28 days. Where longer terms were granted, 33% of businesses told us that they sought to provide short term finance to their customers (higher than the 23% average for the region) and 32% to encourage domestic sales (this is in line with the region).
Over the next six months, 31% of respondents plan to continue applying the same trade credit policy as during the pandemic to encourage domestic sales (regional average: 31%). 25% say they will do so to provide a source of short-term finance to B2B customers (higher than the 20% regional average).
Only 3% of the respondents told us that they will offer less trade credit to their customers over the coming months, highlighting the important role that trade credit has in the trade relations of Irish businesses.
Owing to a drop in sales volume and loss in revenue caused by the pandemic-induced economic crisis, businesses polled in Ireland found it harder to offset the increased administrative and financial costs of managing increased overdue payments. Survey results highlight that 33% of respondents in the country reported a negative impact on profitability, which in turn has a direct bearing on business growth.
Atradius Payment Practices Barometer – November 2020
Late payments increase by 76% year-on-year
Following the onset of the pandemic, the total value of overdue invoices increased from 29% to 51%. This represents 76% year-on-year increase and carries additional financing and administrative costs associated with carrying trade debts. Late payments can be significantly expensive for the supplier.
48% of respondents reported having to wait up to 18 days longer than last year to turn overdue invoices into cash. This can be risky as the longer the receivables remain unpaid, the lower the likelihood of collecting them. An average of 10% of the total value of receivables was written off as uncollectable after the onset of the pandemic (above the 7% average for Western Europe). 8% of the total value of receivables was reported to be still outstanding at 90 days. This indicates that, on average, businesses in Ireland have lost 80% of the value of their receivables that were not paid within 90 days.
The increase in late payments can be seen in the lengthening of DSO. 52% of the businesses reported DSO increases of up to 10% (regional average: 57%). 41% reported increases of more than 10% compared to before the pan- demic (regional average: 37%). Only 7% of businesses reported shorter DSO (regional average: 7%).
To limit liquidity shortages caused by late payments 45% of respondents increased the amount of time, costs and resources they spent on managing outstanding receivables (regional average: 37%). While 33% delayed paying their suppliers (regional average: 33%).
Businesses start to seek credit information direct from customers
We asked businesses what type of credit information sources they customarily used to assess customer creditworthiness. 47% told us they used financial statements prior to the pandemic (regional average 41%). 40% reported using bank references (regional average: 39%). However, after the onset of the pandemic, 49% told us they began sourcing credit information directly from the customers more often (regional average: 38%).
When evaluating the customer’s credit after the start of the economic downturn, businesses reported focusing on their customers’ ability to generate cash. This, along with financial flexibility, are the key areas that businesses plan to focus on over the coming months. This approach acknowledges the importance of assessing the customer’s ability to cope with the unpredictable shifts of the economic and business environment.
We asked businesses whether they applied a different credit management policy following the onset of the pandemic. 63% said they resorted to self-insurance against bad debt (higher than 56% in Western Europe.) 60% requested payment guarantees (regional average: 53%). 58% reported making wider use of letters of credit (versus 36% in Western Europe) and 57% told us they requested cash payments more often (regional average: 34%). 55% of respondents told us that they started to self-insure during the pandemic and nearly 30% said that they turned to self-insurance more often during this time.
Over the coming months, however, self-insurance appears to be the credit management technique favoured by most of the respondents in Ireland. This was reported by 64%, more than the 56% average for Western Europe.
57% plan to request of payment guarantees (regional average: 50%). 55% plan to send overdue invoices for collection earlier than in the past (regional average: 45%). Many businesses in Ireland reported negative impacts of the pandemic on business. 45% reported cash flow difficulties (higher than the regional average of 38%). 47% reported a drop in sales volume (regional average: 45%). 52% reported revenue loss (regional average: 51%).
Of course, with a drop in sales volume and loss in revenue, businesses found it harder to offset the increased administrative and financial costs of managing increased overdue payments. 33% of respondents reported a negative impact on profitability, which in turn has a direct bearing on business growth.
Businesses largely optimistic about 2021 growth
Although there is still a great deal of uncertainty over the progress of the pandemic, and of its impact on the economy, businesses in Ireland are optimistic about the improvement of their customers’ creditworthiness in 2021. 53% of respondents anticipate improvement, with just 20% anticipating a decline. This compares to 47% expecting customer creditworthiness to improve in Western Europe, and 22% expecting a decline. The remainder foresee no change.
This positive outlook is also reflected in attitudes towards the domestic economy. 46% believe this will improve next year, with 33% expecting deterioration.
This compares to an average of 57% expecting growth in their domestic economies across Europe and 27% expecting them to get worse. A similar pattern can be seen in the outlook for the recovery of the global economy. 48% of respondents expressed optimism, whereas a small percentage, 39%, felt the global economy would not recover next year. This is close to Western European averages where 45% expressed optimism and 35% pessimism. 55% of respondents told us they expected international trade to grow next year, and 34% said they expected to see a decline. 49% in Western Europe expect to see growth and 32% a decline.
Maintaining cash flow represents greatest 2021 challenge
Looking ahead, 43% of businesses identified maintaining adequate cash flow as the primary challenge facing them next year. This was also noted by 38% of businesses in the region.
Fall in demand ranks second among major business concerns, with 41% identifying this in Ireland and 36% in Western Europe. Supply chain disruptions were cited by 37% of respondents (regional average: 28%).