Atradius Payment Practices Barometer: Eastern European businesses increase sales made on credit but future outlook clouded by insolvency

Businesses in Eastern Europe are conducting significantly more sales on credit to boost their competitiveness in overseas markets, reports leading trade credit insurer Atradius.

The Atradius Payment Practices Barometer reveals Eastern European businesses transacted an average of 67% of the total value of their sales to domestic and overseas B2B customers on credit; up from just 39% last year. Atradius reports the sharp increase is an indication of the efforts by businesses to sustain demand and improve competitiveness in foreign markets. Across the Eastern European region, Slovakian businesses are the most inclined to offer credit with 92% of sales by value conducted on credit, followed by businesses in the Czech Republic at 88%. At the other end of the scale, Bulgaria seems to have the least trade credit friendly approach with only 34% of the value of B2B sales made on credit.

In addition to offering trade credit more often than last year, suppliers in Eastern Europe appear equally likely to give their B2B customers more time to settle invoices. Payment from customers is requested by at least 37 days from invoicing, three days longer than last year. Businesses in Turkey, Romania and Poland set the most generous terms, requesting payment 59, 40 and 38 days after invoicing respectively.

When it came to getting paid, 73% of Eastern European invoices were paid on time, up from 64% last year. Businesses in Eastern Europe have seen a significant shortening of their invoice-to-cash turnaround to an average of 48 days, down from 55 year on year. Despite this, an average of 24% of the total value of B2B invoices issued by Eastern European businesses remained outstanding at the due date.

To manage potential liquidity issues arising from late payments, more than a quarter (27%) of businesses said they delayed payment to their own suppliers; rising to as many as 42% in Turkey. A total of 1.2% of B2B receivables were written off as uncollectable. This figure was highest in the manufacturing sector (1.8%). Large enterprises faced a higher proportion of receivables written off as uncollectable at 2.8% up from 1.3% last year pointing to a deterioration of the efficiency in collection of long-term overdue payments. Meanwhile, SMEs and micro enterprises fared better with 1.7% and 1.3% recorded as write offs respectively. However, this is up from less than 1% last year.

Looking forward, dimming growth prospects for Eastern Europe are expected to worsen the insolvency outlook with GDP growth forecast to decline to 2.6%, from 3.4% last year. Global trade tensions, heightening uncertainties around the US-China trade conflict, along with the risk of a potential no-deal Brexit, are expected to put many economies in Eastern Europe under severe strain and to trigger a sharp inflection in the insolvency trend in the region, from a 5% decrease last year to a 2% increase in 2019. Higher bankruptcy levels this year are expected in Turkey (+10%), Poland (+4%) and Romania (+3%). The manufacturing sector is the most exposed, due to its high integration in the global value supply chain.

Payment defaults by customers negatively affect cash flow and imply the need to make up for liquidity shortfalls to carry on business operations. If access to bank financing tightens in the short to medium term, suppliers surveyed in the region would offset the expected increase in capital costs chiefly by reducing investment in business growth and workforce, namely through layoffs or hiring freezes.

Tanya Giles, Regional Manager for Wales and South West at Atradius, commented: “The global economy continues to reveal its frailties and is now on a notably slower growth path. Amid rising geopolitical tensions and ongoing uncertainties, the risk that global trade will remain sluggish is growing. This is likely to weaken economic growth in many Eastern European countries, raising the insolvency outlook over the coming months. Against this backdrop, strategically managing the risk of payment defaults by customers is essential to avoid severe cash flow problems and to pave the way for safe, sustainable business growth.”