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|Foreign Late Payment on the Rise in Eastern Europe|
|Thursday, 02 June 2016|
UK businesses exporting to Eastern Europe are being warned of an erratic insolvency picture in the region in a new report from trade credit insurer Atradius.
The annual Eastern European Payment Practices Barometer reveals a rising trend in late payments, challenged liquidity and increased concern about cash flow – despite the fact the regional economy is expected to continue growing at 1.1% this year.
The 2016 report shows that around 20% of businesses in the region, compared to 16% in Western Europe, are concerned about their cash flow levels this year. The survey reveals that concern about cash flow is likely to stem from a higher exposure to trade credit risk arising from late payments by foreign business-to-business (B2B) customers. The average total value of export invoices unpaid at the due date increased 19% to 40.8% from 34.2% last year. The average value of overdue domestic invoices rose 9% to 45.0% from 41.2% last year. This may have an adverse impact on the liquidity position of businesses in the region.
The average total value of survey respondents' export invoices unpaid after 90 days past due exceeded the 20% regional average in the Czech Republic (22.3%), Turkey (26.4%), and Poland (29.8%). Extended payment delays negatively impacts cash flow and can increase the risk of payment default. This may explain why 20% of respondents in Eastern Europe are concerned about their DSO worsening over the next 12 months. This percentage is highest in Turkey (33%) and Poland (27%).
The increase in foreign trade credit risk in Eastern Europe caused a knock-on affect on the supply chain. Around 30% of respondents in the region (25% in Western Europe) paid their own suppliers late due to slow payment by their customers. Additionally, 11% of respondents (7.6% in Western Europe) said late payment from B2B customers caused their business to stop growing.
Richard Reynolds, of Atradius, said: “When trading overseas information is the key to success. Being aware of, and preparing for, the risks involved can be the difference between profit and loss. Exporters need to be familiar with the market conditions in the country they are trading with as well as the wider global climate
“Global economic growth is forecast to slow to 2.4% in 2016, down from 2.6% last year. A significant boost to growth has not come yet, and we are faced with another year of high insolvency and credit risks. Across advanced economies no change in insolvencies is forecast, while increases are expected in most major emerging markets. Limiting payment default risks through a sound receivables management strategy, comprising credit insurance, can be of great value in protecting business profitability.”
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