Payment Periods in Europe - Euler Hermes

Economic Outlook n° 1182 | Special Dossier | Payment periods
Euler Hermes
The longest payment periods are seen in nearly
all countries in the construction and IT services
sectors. The automotive sector in most countries
has the least need of B2B credit. In Spain and France,
there is a difference of around 60 days between the
automotive sector and IT services, while the difference
is 65 days in Italy, only 30 days in Germany, and 20 days
in the United Kingdom. Over the period we examine,
we see a general convergence between payment
periods, limiting cash flow requirements.
We can distinguish four groups of sectors that present
payment periods that are similar in level and
amplitude.
Group 1
▶ Among automakers, we see a relative convergence
between client payment periods and supplier
payment periods, generating some cash flow surpluses,
with the prize going to Italy, which is converging
towards the other countries studied with client
payment periods at 37 days, but which shows record
supplier payment periods at 75 days.
▶ In air transport, payment periods are overall well
respected. While these have been cut by 18% in Italy,
they have however exploded in Spain, lengthening by
52%. For the other countries, payment periods generally
are between 20 and 40 days.
Group 2
▶ In France, sector round tables have helped subcontractors
to even out client and supplier payment
periods. These have shortened by 21%, to 54 days for
client payment periods and 53 days for supplier payment
periods. In the United Kingdom, however, while
supplier payment periods are down by 30% to 41 days,
client payment periods have dropped by only 12% to
68 days, generating a heavy cash flow requirement of
26 days. Germany continues to show rapid payments,
with client payment periods of 36 days and supplier
payment periods of 24 days. Italy for its part has the slowest
payments, with 111 days for client payment
periods and 96 days for supplier payments. Roughly
speaking, payment periods in Italy are twice as long
as in France and three times as long as in Germany!
▶ With global suppliers, the chemicals and pharmaceuticals
sectors show a limited difference in payment
periods. The chemicals sector made great
efforts after the abrupt slump in activity of 2008-2009,
achieving average client payment periods of 65 days
in 2010. Particularly great efforts were made in Spain,
where businesses have cut payment periods by 30%
since 2006. Our study of the sector also shows big differences:
Italy and Spain allow long client payment
periods, at 93 days and 67 days respectively, while they
pay their suppliers at 63 days and 46 days respectively,
creating significant cash flow requirements.
This becomes even worse in the pharmaceutical sector,
in both cases with cash flow requirements at 50 days.
Large cash flow needs are also generated in Germany,
with client payment periods of 46 days, which seem
long given that supplier payment periods are 29 days. In
the other countries in our study, we see a relative
convergence of client and supplier payment periods
within reasonable limits from 30 days to less than 60
days.
▶ In the aeronautics components sector, payment
periods are generally steady at between 20 and 60
days, with the notable exception of Spain where they
are unusually long.
Group 3
▶ In IT services, key clients impose longer payment
periods on suppliers in the sector, which shows fairly
long payment periods generally, particularly in client
payment periods, which are nearly 50 days in Germany
and the United Kingdom, 95 days in France, 101 days in
Italy and 107 days in Spain. The long client payment
periods and the far shorter supplier payment periods
(generally between 20 and 60 days), which are falling
apart from in France (+3% to 51 days) and in Spain
(+14% to 61 days) generates significant cash flow needs
within the sector and creates genuine financial fragility.
Group 4
▶ The highly locally based construction sector sees
payment periods lengthen when the economic climate
worsens, making it the sector where we see the
biggest differences. A prime example is Spain, where
supplier payment periods have reacted a record 157
days (and where the sector has massively suffered). By
contrast, in the United Kingdom client payment periods
are 33 days. It must be noted that the convergence
toward similar payments in these countries will take a
great deal of time. ▣
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