Main survey results for Turkey
Turkey experiences small dip in use of trade credit
Trade credit is currently involved in 46% of the B2B sales of businesses surveyed in Turkey, down from last year’s 50%. About a third of the businesses polled in the country (33%) reported an increase in the total value of B2B sales transacted on credit during the pandemic compared to before the pandemic, while for 36% there was no change. A similar amount (32%) reported a decrease in B2B sales on credit, effectively balancing out the amount that increased and resulting in no overall change.
Businesses told us they most often accepted requests for trade credit from large enterprises, usually as part of a strategy to encourage sales on the domestic market (as reported by 63% of the survey respondents). In addition, for the suppliers who reported an increase in B2B sales on credit, this was on average a 40% increase.
Requests for trade credit from B2B customers that were turned down by suppliers polled in Turkey corresponded to nearly 35% of the total B2B sales value. As before this presents a largely balanced position resulting in no overall change.
The main reason businesses gave for refusing a request for trade credit was high economic risk in the customer’s country. This was cited by 38% of the respondents, well above the 26% average for Eastern Europe, and in line with the fact that Turkey is one of the leading exporting countries in the region.
The second most common reason for turning down a credit request was a deterioration of the customer’s payment practices (as reported by 35% of respondents, in line with the average for the region).
Businesses tighten payment terms to limit exposure to risk
A vast majority (63%) of the businesses surveyed in Turkey reported setting payment terms up to 30 days on average. Payment terms of 31 to 60 days were favoured by 20% of the survey respondents, 61 to 90 days by 7% of businesses and the remaining 11% set payment terms of more than 90 days.
Overall the average payment terms for Turkey are 42 days, significantly down from last year’s 59-day average. This is likely to be caused by the heightened insolvency environment, where businesses shortened payment terms in order to support their own liquidity or reduce their exposure to risk.
When asked to look at the next six months, businesses told us they will continue to apply the same trade credit policy they have applied during the pandemic, despite the widespread belief held by many businesses that the Turkish domestic economy will improve. However, among the businesses that plan to accept requests for trade credit next year (40%) or even extend longer payment terms (31%) about a third said they planned to do so in order to encourage domestic sales and support customers who may be experiencing financial distress. This seems to suggest that among these businesses at least, there is the belief that tough economic conditions will continue in the short term at least.
Looking forward to 2021, more businesses polled in Turkey said they believe the domestic economy will improve over the next six months (68% of respondents) than those who expect it to deteriorate (21%).
Atradius Payment Practices Barometer – November 2020
Value of overdue invoices soar by 83% over pre-pandemic levels
The total value of overdue invoices increased by 83% year-on-year during the pandemic in Turkey. In last year’s survey 30% of the total value of B2B invoices were overdue, this year the figure is 55%, (well above the 45% regional average). The increase in late payments can also be seen in the lengthening of DSO. 45% of the businesses we polled reported DSO increases of up to 10%. 55% of the businesses we spoke to told us of increases in DSO of more than 10% compared to before the pandemic.
Overall DSO in Turkey now stands at a 154-day average, substantially higher than the 103-days average for the region.
On a more positive note, write-offs decreased to 7% of the total value of B2B invoices, down from 16% last year. However, this may in part be due to the drop in credit-based sales or possibly because the invoices are still in progress and not yet written off.
Financial statements and bank references favoured for credit assessments
When asked what type of credit information sources they normally used to assess a B2B customer’s creditworthiness before the onset of the pandemic, most of the respondents to our survey said they relied on financial statements (55%), bank references (50%) and information provided directly from the customer.
After the onset of the pandemic many businesses told us they started to complement these sources with credit reports from credit reporting agencies (38% of respondents). Once credit information is obtained, businesses in
Turkey told us they prioritise assessing the payment histories of their customers, as well as its capability to generate cash. The survey respondents also said they plan to continue monitoring these areas for the next six months, although most felt optimistic about the future. Indeed, most of the businesses we polled in Turkey (70%, significantly higher than the 52% of respondents in the region) believe that their customers’ creditworthiness and payment habits will improve in 2021.
91% of businesses in Turkey opt to self-insure
The vast majority of businesses in Turkey choose to absorb the hit of a bad debt themselves. In our poll, 91% of respondents reported that they opted for self-insurance and managed trade credit risk internally. As part of their self-insurance, businesses most often used overdue invoice reminder letters and requested payment on cash for goods and services.
During the pandemic, businesses reported using debt securitisation more often (38% of respondents). On the whole, most businesses told us they plan to keep the same approach to credit management over the next six months, although a sizeable percentage (73%) reported they plan to send overdue invoices to collection earlier than they did before the pandemic, and would consider using trade credit insurance over the same time frame.
Businesses in Turkey delay paying suppliers to protect cash flow
More than half of the businesses we polled in Turkey (51%) told us that they delayed payment to their suppliers in order to protect their business from the negative impact of the pandemic-led economic crisis. Following this, 42% of businesses reporting cutting costs by laying off the workforce. This largely echoes the percentages of businesses that reported being negatively impacted by the pandemic-led economic crisis.
50% of respondents to our poll reported a negative impact on revenue (less than the regional average of 59%) and 48% reported a negative impact on cash flow (also less than the average for Eastern Europe that stands at 51% of businesses).
Cash flow concerns dominate outlook for 2021
When looking forward to 2021, most of the businesses polled in Turkey reported that maintaining adequate cash flow is the greatest challenge to business profitability next year (an average of 52% of respondents, compared to 37% at regional level). Although Turkish businesses appear to be more concerned about cash flow in the next six months than their peers across Eastern Europe, their concerns about falling demand are in line with the region (42% expressed this concern in Turkey versus 41% in the region). The same is true for concerns about a continuation of the pandemic and extended economic crisis: 40% of respondents in Turkey said they were concerned about this and 39% in Eastern Europe.
Looking at the wider economy, more respondents said they believe the domestic economy will improve over the next six months (68%) than those who expect it to deteriorate (21%). This optimisim extends to the global economy where 61% expect to see an improvement and 27% deterioration, and for international trade (64% improvement, 25% deterioration).