Survey findings for Switzerland
Businesses offer most trade credit to large enterprises on the domestic market
61% of the businesses we surveyed in Switzerland told us that most often accepted requests for trade credit in order to encourage sales on the domestic market, chiefly from large enterprises. This is substantially more than the 35% reported by businesses across Western Europe.
Interestingly, majority of credit refusals also concerned domestic customers. The main reasons for turning down a credit request were deterioration in creditworthiness and insufficient information on the customer’s business or payment performance. 54% of respondents reported refusing credit requests (regional average: 34%), with credit refusals amounting to nearly one third of the total B2B sales value.
This year, nearly 55% of all B2B sales were made on credit. This represents a year-on-year dip of almost 10%, after last year’s high of 65.6%. However, this year’s credit sales are still far higher than the 28%-30% recorded over the previous few years.
Most businesses (69%) told us there was no change in the total value of their credit sales after the onset of the pandemic compared to before the pandemic. 22% told us that the total value of credit sales increased by one third, while 9% of respondents reported a decrease.
Payment terms remain fairly constant year-on-year
83% of businesses reported setting payment terms of up to 30 days on average. 8% set terms from 31 to 60 days, 4% from 61 to 90 days and the remaining 5% from 90 days and above. 36% of respondents reported granting longer payment terms than before the pandemic, most often up to 20 days longer (significantly lower than the 47% regional average). 58% told us there was no change in their payment terms (regional average: 48%), while 6% offered shorter terms than they did before the pandemic, on average 10 days earlier than last year. Average payment terms have remained largely constant year-on-year.
Last year they stood at a 31-day average, this year the average is 33 days. 29% of respondents told us they granted longer terms to encourage foreign sales (regional average: 20%) and 24% said it was to encourage domestic sales (re- gional average: 32%). Trade credit as a source of short- term finance was granted to B2B customers by 16% of re- spondents in the country, lower than the 23% reporting this in Western Europe.
Following the onset of the pandemic, 46% of the total value of the B2B invoices in Switzerland was overdue (up from last year’s 27%, although close to the regional average of 47%). This represents a 70% year-on-year increase and a rise of 18 days in turning overdue receivables into cash.
Atradius Payment Practices Barometer – November 2020
Credit policies aim to grow sales on both domestic and foreign markets
48% of the businesses surveyed plan to continue with the same trade credit policies they have been using during the pandemic. The focus, as described by 25% of busi- nesses for each, is to encourage foreign sales as well as to stay competitive on the domestic market.
This reflects the country’s economy and its dual focus of a strong domestic sector and export-orientated indus- tries. It is also worth mentioning that only 5% of the re- spondents in the country told us that they will offer lower levels of trade credit to their customers over the coming months. This further highlights the important role that trade credit has in the domestic and export trade rela- tions of Swiss businesses, and the role of trade credit as a trade enabler during the pandemic.
Switzerland experiences a 70% increase in late payments
Following the onset of the pandemic, 46% of the total value of the B2B invoices in Switzerland was overdue (up from last year’s 27%, although close to the regional aver- age of 47%). This represents a 70% year-on-year increase and a rise of 18 days in turning overdue receivables into cash. The longer an invoice remains unpaid, the higher the risk of payment default.
An average of 7% of the total value of B2B receivables was written off as uncollectable after the onset of the pandemic (in line with the 7% average for Western Europe).
6% of the total value of B2B receivables was still outstanding at 90 days. This suggests a loss of nearly 90% of the value of B2B receivables that were not paid within 90 days.
The increase in late payments is also reflected in the lengthening of DSO. 70% of the businesses surveyed re- ported DSO increases of up to 10% (regional average, 57%) 23% reported year-on-year increases of more than 10% (regional average: 37%). Only 7% of businesses reported shorter DSO than before the pandemic (in line with the 7% average for Western Europe).
Several markers of business distress reported during pandemic
52% reported a drop in sales volume following the onset of the pandemic, significantly more than those reporting no impact (32%). 43% of the survey respondents reported liq- uidity issues caused by the recession, higher than the 38% in Western Europe. 51% reported a negative impact on rev- enue (in line with the regional average).
30% of businesses reported increasing the amount of time, costs and resources spent on managing outstanding receivables (regional av- erage: 37%), followed by 28% that laid off members of their workforce (same as the regional average).
Most businesses continue reliance on traditional sources for credit checks
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. Most businesses told us that prior to the pan- demic they normally relied on financial statements, as well as on bank and trade references. After the onset of the pandemic, 70% of respondents confirmed continuing with this approach, but almost one quarter also began sourcing credit information directly from the customers (lower than 38% regional average).
When evaluating credit quality, most businesses told us they focused on the customer’s past payment history as well on financial flexibility and the ability to access liq- uidity to meet unexpected or unanticipated future needs. Over the coming months, however, businesses surveyed in Switzerland told us they will closely monitor the cus- tomer’s payment history when assessing creditworthi- ness.
Majority of businesses plan to use credit insurance next year
We asked businesses whether the pandemic caused them to change their approach to credit management. Some did alter their strategies. Of note looking ahead, the majority (41%) told us that they plan to use trade credit insurance in 2021 (regional average: 47%).
Prior to the start of the pandemic, 60% of respondents practised trade debt securitisation. After the onset of the pandemic 46% told us that they raised finance through trade debt securitisation more often (regional average: 35%).
42% (in each case) told us they increased the use of debt collection agencies, sent overdue invoices to collection earlier, and sent outstanding invoice reminders more often. One quarter of the respondents opted to self-insure after the onset of the pandemic, adding to the 53% of re- spondents who claimed that they had already opted to self-insure before the pandemic.
Businesses slightly downbeat about global economy and international trade
Businesses polled in Switzerland are a little less opti- mistic than their peers in Western Europe about the out- look for both the global economy and international trade. 36% of respondents expect it to improve (regional aver- age: 45%). Likewise, 43% expect international trade to improve next year (regional average: 49%). Swiss respon- dents were a little more optimistic about the outlook for their domestic economy. 51% expect it to improve during 2021. Although this is lower than regional average of 57%, it is still greater than the 29% who expect the domestic economy to get worse (regional average: 27%).
Looking towards the future of customer creditworthi- ness, the respondents were evenly split with 40% predict- ing improvement (regional average 47%) and 40% predicting deterioration in 2021. 20% believe there won’t be any change.
Cost containment is top business concern for next year
43% businesses in Switzerland believe the greatest threats to profitability next year to be the containment of credit management costs, caused by an increase in late payments (regional average 41%).
38% of respondents also expressed concerns that potential restrictions of access to bank finance next year could negatively impact their cash flow (regional average: 30%).