Payment Periods in Europe - Euler Hermes

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Euler Hermes Economic Outlook n° 1182 | Special Dossier | Payment periods ◾◾◾ Automotive component makers and SMEs in the face of the large automakers: what negotiating power do subcontractors have? ▶ The scissors effect between client payment periods and supplier payment periods, with subcontractors coming out the losers, is a direct result of the power of automakers over their subcontractor suppliers. In France, given the many problems encountered by subcontractors, measures were adopted through a code of good practice of client/supplier relations for subcontracting in the auto sector (see Annex I). in a significant increase in working capital requirements. ▶ In Italy, the cash flow requirements are 14 days, with the longest client payment periods in Europe (110 days, twice as long as in France and three times longer than in Germany), offsetting once again very long supplier payment periods, at 96 days’revenue. Italy has not implemented a code of good practice that could, as in France, considerably improve relations between major contractors and subcontractors. We note in the case of Italy an evident financial fragility when it comes to implementing the new European Directive on payment periods. With its highly structured business sectors, Germany has no need to implement codes of good practice. ▶ For the auto components industry in France, there has been a clear improvement in payment periods. Indeed, client payment periods in the industry had been rising consistently after 2000, to 110 days in 2004 (source: Euler Hermes). The application of the code of good practice, combined with the introduction of the LME, obliged automakers to move to payment periods compatible with supplier payment periods. We thus saw a proportional contraction in payment periods in 2010, to 54 days for client payment periods and to 53 days for supplier payment periods, helping subcontractors to maintain low cash flow requirements. In Germany, while payment periods are the shortest, the cash flow requirements are however higher than in France. ▶ In Spain and in the United Kingdom, there is a scissors effect between client payment periods (83 days and 68 days respectively) and supplier payment periods (52 days and 41 days respectively), resulting ▶ Cyclical factors: for major contractors, purchasing operations should, with recovery, bring value added, as subcontractors should produce equivalent or more innovative quality at a lower cost; extreme concentration among suppliers makes negotiations difficult or even simply unlikely to bear fruit. ▶ Structural factors: with client payment periods down by half in 2010 to 54 days’revenue, the auto components industry in France has been one of the major beneficiaries of the June 2006 signature of the code of good practice. In order to adapt to the new European Directive coming into force in March 2013, Italy will have to make the greatest efforts to shorten payment periods, and this will not only be a real challenge, but also will pose risks to business cash flows. ▣ 16
Economic Outlook n° 1182 | Special Dossier | Payment periods Euler Hermes Client payment periods: automotive components Client payment periods in days’ revenue, 2010 100 90 80 70 60 50 40 30 20 10 0 GB 68 ES 83 SE 51 -150% -100% -50% 0% 50% 100% Supplier payment periods: automotive components IT 111 FR 54 NO 40 DE 36 BE 67 DK 55 Change Supplier payment periods in days’ revenue, 2010 120 100 80 60 40 20 0 GB 41 IT 96 FR 53 53 -100% -50% 0% 50% 100% Source: Euler Hermes NO 27 ES 52 SE 39 BE 49 DE 36 DK 20 Change Indicator of change in client payment periods: automotive components 120 100 80 60 40 20 Cash flow Tension Indicator: automotive components 60 50 40 30 20 0 10 -20 -40 -60 -80 2007 Source: Euler Hermes 2008 2009 2010 France Germany Spain Italy United Kingdom Belgium 0 -10 -20 2006 2007 Source: Euler Hermes 2008 2009 2010 France Germany Spain Italy United Kingdom Belgium Client and supplier payment period gap: automotive components Italy 44 41 Spain Belgium -1 -4 -3 13 United Kingdom -11 -2 France -28 Germany -34 -16 0 -40 -30 -20 -10 0 10 20 30 40 50 Client payment period difference from average of 37 days Client payment period difference from average of 37 days Source: Euler Hermes 17
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Payment Periods in Europe - Euler Hermes

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