Main survey results for Slovakia
Businesses delay paying bills as part of measures to protect viability
Businesses throughout Slovakia employ a variety of measures in a bid to protect their ﬁnancial viability in the face of the pandemic-led economic crisis. Nearly 40% of businesses polled told us that they needed to delay payments to their suppliers in an attempt to protect cash ﬂow. 37%reported managing the increased costs caused by the late payments by laying off members of their work force.
Other methods used to speed up invoice-to-cash turnaround include invoice payment reminders (reported by 60% of survey respondents), adjustment of credit terms (59%) and swifter attempts to collect on overdue invoices (53%).
The success of these measures is reﬂected in the signiﬁcant decrease in overdue receivables written off as uncollectable (to 3% from 7% last year) and to an average 73-day DSO (the lowest in Eastern Europe).
Longer payment terms offered to B2B customers
Prior to the pandemic, payment terms offered by businesses in Slovakia averaged 33 days from invoicing. Following the economic downturn, longer payment terms (on average eight days longer) were given by a sizeable percentage (41%) of the survey respondents.
This suggests it may be a fairly common business practice, part of a wider trend of lengthening payment terms already observed last year. However, the majority of businesses (58%) told us that they had kept payment terms unchanged and just 1% reported offering shorter terms.
Such a high percentage of businesses maintaining or even lengthening payments terms may contradict expectations of business behaviour in such a heightened insolvency environment where more relaxed payment terms represent more risk. However, along with the majority of businesses in Eastern Europe, respondents to our survey told us that they needed to offer credit and attractive payment terms in order to make the sale. This, in part at least, further highlights the signiﬁcant liquidity shortages that businesses in Slovakia have experienced due to the pandemic and might indicate a wider trend across Eastern Europe.
In the difﬁcult economic times we are experiencing due to the pandemic, concerns about securing payment are grave. Strategic credit management, including the use of credit insurance as a form of payment protection, helped us cope with unwelcome strain on cash ﬂow.
Credit Manager – SME – Metals
Atradius Payment Practices Barometer – November 2020
Majority of businesses turn down requests for trade credit
Perhaps in a bid to minimise the risk of customer payment default, it is worth noting that alongside offering longer payment terms to some customers, the majority of businesses in Slovakia actually turned down requests for trade credit. Most of the suppliers polled (68%) said they had turned down requests of trade credit from B2B customers (mainly SMEs) more often than before the pandemic, due to a deterioration in creditworthiness.
A reﬂection of this can be seen in the signiﬁcant drop in the total value of B2B credit sales by businesses in Slovakia. Trade credit is currently involved in 46% of Slovakia’s B2B sales, compared to last year’s 91%. This is also attributable to the drop in sales volume due to the demand shocks borne by some industries.
However, levels of credit sales remained stable compared to last year for a sizeable percentage of businesses (53%). In addition, a modest proportion (20%) reported having more often accepted trade credit requests from their B2B customers than before the pandemic.
This tended to involve mainly large enterprises in the agriculture, food and beverage and chemicals and pharmaceuticals industries. They told us that they did this in order to support sales, chieﬂy on the domestic market, that would have not been possible otherwise due to the liquidity squeeze experienced by their B2B customers during the pandemic.
Slovakia reverses trend for assessing customers and prospects
We asked businesses in Slovakia what sources of information they used to assess the creditworthiness of customers and prospects both before and after the onset of the pandemic recession. Before the recession ﬁnancial statements were used most often to assess creditworthiness (55% of respondents). During the pandemic this changed, with internal sources (information provided from the customer), jumping to ﬁrst place in terms of popularity. The slowdown and deterioration in B2B customer payment habits, including the higher default risk, led many of the businesses we polled in Slovakia to strengthen their approach to customer assessments. In addition, a sizeable percentage of respondents (15%) said that during the pandemic they started using trade references, which also echoes a more direct approach to gathering information on customers and prospects.
To mitigate the risks inherent in offering trade credit to B2B customers, 92% of the businesses surveyed in Slovakia reported using one or more credit management tools. Prior to the onset of the pandemic recession, most businesses in Slovakia (60%) favoured using outstanding invoice reminders to speed up the settlement of bills. 21%of businesses told us that they used this method of dunning letters more often after the economic downturn. Interestingly, an even higher percentage (32%), turned to credit insurance to mitigate risk as they continued to trade during the recession. This ﬁgure was only matched by the percentage of businesses offering discounts for early payment of invoices and surpassed (35%) by businesses seeking securitisation.
Cautious optimism expressed for 2021 customer creditworthiness and domestic economy
Seeing light at the end of the tunnel, businesses in Slovakia expect the creditworthiness of their B2B customers to improve over the next six months (reported by 43% of the businesses polled). This could be a reﬂection of the cautious optimism expressed by many businesses that the domestic economy would improve. 36%of businesses told us they expected no change in creditworthiness and 21% were braced for deterioration. In contrast, the majority of businesses polled (47%) believe the global economy will deteriorate further during 2021. This is at odds with the slightly more optimistic view that the domestic economy will improve over the same timeframe (expressed by 48%).
When asked for their opinion on the international trade outlook, businesses in Slovakia were evenly split. 40%told us they thought international trade would improve, 40% said it would deteriorate and 20% thought there would be no change.
When looking forward to 2021, containment of costs causes the greatest concern for businesses in Slovakia. 43% of businesses polled in the country expressed concern about this, in comparison to an average of 37%across Eastern Europe.