Payment practices report
November 2020: business turns to trade credit in a bid to grow sales
Survey results for Italy
The Atradius Payment Practices Barometer is an annual survey that assesses business payment behaviour throughout the world. The survey explores a range of topics including payment terms, payment delays, credit sales and DSO (Days Sales Outstanding).
The survey provides us with the opportunity to hear directly from businesses and, this year, gives us insight into how businesses are coping with the COVID-19 pandemic and global recession.
In this report, you will find the survey results for Italy.
Country Director of Atradius in Italy, commented on the report
Trade credit remains an essential cornerstone in the attempt to stimulate sales, especially on the domestic market. Likewise, it corroborates the belief regarding the importance of using credit insurance for protecting trade receivables. This is a trend of economic crisis situations, in countries like ours where companies traditionally prefer to assess potential customers’ credit quality and absorb the consequences of payment defaults without outsourcing credit risk management to external professionals. And this relates more to mindset (low insurance culture especially among SMEs) than to cost reasons.
The next six months will be critical and a lot will depend on the severity of the persistence of the crisis. Continuing trade restrictions and lockdowns can severely harm the economy. Although most businesses appear to be relatively optimistic in the short term, especially with regard to a potential recovery of domestic trade over the next 6 months, the truth is that the situation still presents too many unknowns to allow to formulate reliable predictions.
More than half of business sales use trade credit Trade credit is currently involved in 55% of B2B sales in Italy. This is consistent with the average for Western Europe.
Payment terms increase in length compared to pre- pandemic levels Nearly half of the respondents reported granting longer payment terms to their B2B customers than before the pandemic, up to one month longer.
Businesses turn to self-insurance more often After the onset of the pandemic, nearly half of respondents approached self-insurance for the first time, while 20% resorted to self-insurance more often.
Businesses respond to poor cash flow by delaying payment to suppliers Due to the increase in customer payment defaults, 39% businesses told us they experienced cash flow difficulties and, in response, 41% delayed paying suppliers.
Most businesses expect domestic economy to improve in 2021 68% of businesses appear to be hopeful and confident that the domestic economy will improve next year, more than the average 47% that share this view at a regional level.
Businesses offer greatest percentage of trade credit of past five years
The COVID-19 economic downturn has had a great impact on businesses in Italy. The country endured one of the longest and most stringent lockdowns in Europe. The government has enacted some social assistance measures and a temporary freeze on insolvency proceedings in a bid to invigorate the economy and keep trade flowing.
Businesses have also taken steps to promote trade. Following the pandemic downturn, businesses in Italy offered the greatest percentage of trade credit for five years. Currently involved in 55% of B2B sales, trade credit was used in 52.9% of sales last year and 46% in 2018. The majority of respondents to the Payment Practices Barometer Survey that offered trade credit told us they did so mainly to domestic customers in order to stimulate credit sales.
Although it might seem counterintuitive to offer credit during a recession and environment of heightened insolvency, B2B credit can be a valuable tool for business generation, particularly when cash flow is protected. The majority of businesses in Italy told us that they expect domestic trade to improve next year.
Throughout this report we have benchmarked the results of the survey against last year’s poll and the average results of the region. This allows us to identify trends that are likely to be a result of the pandemic and to compare how Italy is faring against its peers.