Survey findings for the Netherlands
Businesses expand use of trade credit to grow domestic sales
Despite the onset of the pandemic recession, trade credit is very much favoured by businesses in the Netherlands, the majority of which use it as a competitive tool to encourage sales on the domestic market. In line with the average for Western Europe, trade credit is currently involved in 55% of B2B sales. 42% of Dutch businesses surveyed for this year’s Payment Practices Barometer reported an average 36% increase in the total value of their B2B sales transacted on credit compared to before the pandemic. For 47% there was no change. A significantly lower percentage of respondents reported a decrease in B2B credit sales following the pandemic downturn (11%).
On the domestic market, most higher value trade credit requests were accepted, whereas those from foreign customers were turned down (including for lower value requests). This is a change from pre-pandemic credit trends and is all the more notable considering the Netherlands has a strong export tradition.
56% of the businesses we surveyed told us that trade credit was a main driver to encourage sales on the domestic market. When requests for trade credit were refused, 38% of the respondents told use that this was due to a higher risk of payment default in their customers’ countries (higher than the regional average of 30%). On average, trade credit request refusals corresponded to nearly 20% of the total B2B sales value.
When we asked businesses about their future trade credit plans and policies, most referenced export trade. 30% of businesses told us that over the next six months, they would extend more relaxed payment terms to encourage foreign sales. This suggests that following the initial caution exhibited by Dutch exporters during the pandemic, appetites for engaging in foreign trade are growing again.
Businesses in the Netherlands relax payment terms in a bid to win sales
The vast majority of businesses in the Netherlands set payment terms of up to 30 days on average (as reported by 65% of respondents). This is followed by 17% of businesses that set terms of 31 to 60 days and 4% with 61 to 90 days. Interestingly, before the pandemic, only 4% of businesses in the Netherlands offered payment terms longer than 90 days. During the pandemic this altered radically so that during our survey, 14% of businesses revealed that they offer 90 days or above. 46% of survey respondents reported granting longer payment terms than before the pandemic, on average up to 20 days longer.
This change in approach to payment terms can be seen most clearly in the average day number for the country as a whole. Last year average payment terms stood at 28 days. This year, average payment terms for businesses in the Netherlands are 49 days. Businesses told us that the main reason for granting longer terms is to encourage domestic sales (as reported by nearly 30% of businesses surveyed).
For 48% of the businesses surveyed, payment terms remained stable, and only 6% of respondents reported shortening terms, bringing them down to an average 10 days earlier than last year.
During the pandemic, average payment terms went up by 21 days
Atradius Payment Practices Barometer – November 2020
Late payments surge by 75% on pre-pandemic levels
After the onset of the pandemic, 56% of the total value of B2B invoices was overdue, compared to just 32% last year. This is above the regional figure of 47% and represents an average 75% increase year-on-year. On average, businesses in the Netherlands reported they had to wait 25 days longer than last year to turn overdue invoices into cash. 10% of the total value of B2B receivables was written off as uncollectable and 9% was still outstanding at 90 days, representing a loss of 90% of the value of their B2B receivables that were not paid within 90 days.
The increase in late payments caused by the pandemic-induced economic crisis is reflected in the lengthening of DSO. 49% of the businesses surveyed in the Netherlands reported DSO increases of up to 10%, and 49% of more than 10%. Only 2% of businesses reported shorter DSO compared to before the pandemic.
Due to increased customer payment defaults, businesses surveyed in the Netherlands told us they needed to take protective measures to avoid suffering liquidity shortages. This included delaying payment to their suppliers (reported by 39% of respondents) and increasing the amount of time, costs and resources spent on managing outstanding receivables (38%).
30% of businesses reported laying off of staff and 30% sought additional financing from external sources (including factoring above).
Businesses in the Netherlands get closer to customers when assessing creditworthiness
Against this background, we asked what type of credit information businesses in the Netherlands use to assess their B2B customers’ creditworthiness. 47% said they normally rely on financial statements and 43% bank references. However, after the onset of the pandemic, 45% of businesses told us that they began to source credit information directly from their customers and they did so more frequently than accessing bank references. This could be due to the speed with which the downturn took hold, meaning that many of the more traditionally used sources of information were not up to date enough. It could also reflect the fact that buyers and suppliers are working more closely together to support each other through the more challenging times.
When evaluating a customer’s credit quality during the economic crisis, businesses reported focusing on: customer profitability, ability to generate cash and financial flexibility. The ability to access cash to meet unexpected or unanticipated needs is essential in volatile economic environments such as those triggered by the pandemic. This latter is the area that businesses surveyed in the Netherlands told us they plan to focus on over the coming months. This is not surprising as focusing on financial flexibility acknowledges the ability of the customer to cope with the unpredictable shifts of the economic and business environment.
Businesses tighten credit management policies due to pandemic recession
Following the onset of the pandemic recession, we asked businesses in the Netherlands whether they changed their credit management policies to better reflect the economic environment. Most respondents (68%) told us that after the onset of the pandemic they began to retain and manage the risk of customer payment default internally through self-insurance, while 43% started using factoring to maintain cash flow. 45% sent overdue invoice payment reminders to customers more frequently, while 40% told us they made a more extensive use of trade credit insurance. Over the coming months, however, self-insurance appears to be the credit management technique favoured by most of the respondents in the Netherlands (64%), followed by requests for payment guarantees or payment in cash (57%).
Perhaps because of strong credit management, or maybe because of proactive government intervention, most of the survey respondents told us that their revenue and cash flow were largely unaffected by the negative impacts of the pandemic. 41% said their revenues were unaffected, compared to 34% reporting a negative impact. 47% admitted no affect on cash flow, whereas 19% told us the pandemic had had a negative impact.
Businesses upbeat about 2021 despite challenges of pandemic recession
Although uncertainty about the pandemic continues, 48% of businesses in the Netherlands are optimistic about the improvement of their customers’ creditworthiness in 2021. In contrast, just 20% polled expressed pessimism. For 32% of respondents, it will not change.
This sense of optimism can also be seen in attitudes towards the domestic and global economies and international trade. 68% expects the domestic economy to improve, with just 15% anticipating deterioration.
47% is optimistic about the global economy and 24% pessimistic. In regards to international trade, 49% of businesses expressed optimism and 26% pessimism.
The majority of businesses in the Netherlands told us that the greatest threats to business profitability in 2021 include cost containment and maintaining adequate cash flow (reported by nearly 50% of respondents each).