Survey findings for Italy
More than half of all B2B sales are made on credit
Trade credit is currently involved in 55% of B2B sales in Italy. This is consistent with the average for Western Europe. 34% of the businesses surveyed told us that the total value of their B2B credit sales increased on average by one third following the onset of the pandemic. For 53% there was no change. A significantly lower percentage of Italian respondents reported a decrease in the total value of B2B sales made on credit (13%). Most businesses accepted requests for trade credit to encourage sales on the domestic market. This was reported by 61% of those surveyed, higher than the 53% average for the region overall.
A rise in the risk of customer payment default following the economic downturn was the primary reason for turning down credit requests, reported by 41% of the businesses surveyed, higher than the 30% regional average. This was mainly in the SME segment, although this is to be expected as 90% of the businesses surveyed in Italy are SMEs. On average, credit refusals corresponded to one third of the total B2B sales value.
Twice as many businesses offer terms of more than 90 days than last year
43% of the businesses surveyed reported setting payment terms up to a maximum of 30 days on average. 30% of respondents set terms from 31 to 60 days, 13% set terms from 61 to 90 days and the remaining 15%, from 90 days or above. This is almost double compared to the 8% of respondents that offered terms of longer than 90 days last year. Nearly half of the respondents in the country (47% in Western Europe overall) reported having granted longer payment terms to their B2B customers than before the pandemic, up to one month longer.
This can be seen in the 62-day average for payment terms in the country, longer than last year’s 51 days. Businesses told us they granted longer periods to pay invoices in order to stimulate domestic sales. This was reported by 37% of businesses, higher than the 32% in Western Europe. Only 4% of respondents reported requesting earlier payment of invoices than last year. This amounted to an average of 15 days earlier than last year. For the remainder of the businesses, payment terms did not change.
Over the coming months, 37% of businesses plan to grant trade credit more often than they did before the downturn (regional average: 31%). 28% plans on extending longer payment terms to customers (regional average: 24%). This will be undertaken chiefly to stimulate domestic and foreign sales.
Although many businesses across Europe reported offering trade credit as a source of short-term finance, this response was less common in Italy. This could be because of government support and the fact that the banking system did not refrain from providing finance following the onset of the recession.
Most respondents in Italy predict that business profitability in 2021 could be severely compromised by both failure to contain costs (cited by 46% of respondents) and ineffective collection of outstanding invoices (43% of respondents).
Atradius Payment Practices Barometer – November 2020
Businesses experience a significant increase in late payments
Following the onset of the pandemic, the total value of overdue B2B invoices increased from 31% last year to 55% (regional average 47%). This corresponds to an average 77% increase year-on-year and represents a significant increase in the financing and administrative costs associated with carrying trade debts.
Nearly 40% of respondents in Italy (39% in Western Europe overall) told us they needed to wait longer than last year to turn overdue invoices into cash. This is, on average, one month longer than last year and notably higher than the 22-day average for Western Europe overall. The longer the receivables remain unpaid, the lower the likelihood of collecting them.
For Italy an average of 7% of the total value of B2B receivables was written off as uncollectable since the onset of the pandemic. This is higher than the 4% recorded in Italy last year, but in line with averages for Western Europe this year. 9% of the total value of B2B receivables was reported to be still outstanding at 90 days. This indicates that businesses in Italy have lost nearly 80% of the value of their B2B receivables that were not paid within 90 days.
59% of the businesses surveyed reported DSO increases of up to 10%. 34% reported increases of more than 10% and 7% of businesses reported shorter DSO compared to before the pandemic.
2 in 5 businesses withhold payments to suppliers
Due to the increase in customer payment defaults, 39% businesses told us they experienced cash flow difficulties (regional average: 38%). In response 41% of respondents delayed paying suppliers. This is far higher than the 34% that reported the same in Western Europe.
This could suggest that Italian businesses have been hit harder by pandemic-induced late payments than their peers in Western Europe. In addition, 33% of respondents told us they needed to increase the amount of time, costs and resources spent on managing outstanding receivables in house (a little fewer than the 37% average for Western Eu- rope).
Italian approach to credit assessments changes in response to pandemic
We used the survey to ask what type of credit information businesses 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. Last year, 44% normally relied on bank references (regional average: 41%), along with the financial statements and trade references (35% each). However, following the onset of the pandemic, 43% of businesses sourced credit information directly from the customers more often (regional average: 38%). Businesses told us that customer-sourced information tended to be more up-to-date than other data.
When assessing creditworthiness, businesses mainly focused on the customer’s ability to generate cash. Looking head they said they intend to assess the customer’s financial flexibility and ability to access cash to meet unexpected or unanticipated needs during the volatile and uncertain business environment.
Businesses revise their credit management policies
Following the economic downturn, many businesses reviewed and altered their credit management strategies. 63% told us that, prior to the pandemic, they had opted for self-insurance against bad debt.
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. 48% told us they used factoring more often than before the downturn. Looking ahead, however, 62% of businesses told us they intend to practise self-insurance. This is followed by 52% planning to request payment guarantees and 50% offering discounts for early payment of invoices.
It is worth noting that 50% of respondents told us they did not use credit insurance to protect the business against the risk of customer payment default before the start of the pandemic. While a sizeable percentage (30%) approached it for the first time during the pandemic and more (44%) plan to use it over the coming months.
This is an interesting trend as it suggests a sizable portion of businesses in Italy value trade credit insurance during times of economic pressure, but perhaps do not perceive the value outside of recession.
Nearly half of businesses anticipate a strain on profitability in 2021
Most respondents predict that business profitability in 2021 could be severely compromised by both failure to contain costs (cited by 46% of respondents) and ineffective collection of outstanding invoices (43%). Despite the pandemic-related uncertainties, more businesses believe that the outlook for their customers’ creditworthiness will improve than deteriorate next year (51% optimistic, versus 19% pessimistic, with a regional average of 47% favouring an improvement in customer credit ratings). 31% of respondents foresee no change (regional average: 29%).
68% of businesses appear to be hopeful and confident that the domestic economy will improve next year (regional average: 47%). In contrast, 20% expects a decline (regional average: 27%). 51% anticipates a recovery in the global economy (regional average: 45%), with 29% predicting a decline (regional average: 35%). Attitudes towards international trade were a little more upbeat, with 56% predicting growth (regional average: 49%), and 24% deterioration (regional average: 32%).