Payment Periods in Europe - Euler Hermes

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Euler Hermes Economic Outlook n° 1182 | Special Dossier | Payment periods Chemicals: supplying industries and supporting the industrial fabric via client credit Between 2003 and 2005, the chemicals sector went through the bottom of a cycle. It followed this with large-scale restructuring among operators that at times disrupted output flows. In 2009, the sector suffered the impact of the abrupt economic slowdown on its clientele, especially in the auto and construction sectors. This gave way to the appearance of input bottlenecks that in turn brought an increase in payment periods in the chemicals sectors of nearly every country. A limited variation in payment periods. ▶ Generally, one can say that enormous efforts were made in the chemicals sector to manage cash flow requirements. It was rather as if the violent downturn in activity experienced in 2008-2009 convinced operators to set right the way they were financing their operational cycles in order to not (or no longer) undergo the horrid consequences of suddenly running out of cash. The improvement in managing cash flow requirements in the French chemicals sector has been genuine. The sector’s cash flow requirements of 8 days’revenue seems the lowest in Europe after The United Kingdom (3 days). With client payment periods falling by 8% in 2008 and supplier payment periods by 12%, the French chemical industry has come out well, notwithstanding a slight increase in payment periods in 2009. In 2010, payment periods dropped below 60 days, with client payment periods of 58.7 days’revenue and supplier payment periods at 50.9 days, or a total shrinkage of payment periods of 11% between 2006 and 2010. shows once again a stable and effective management of operating requirements. The income on cash of the good performers in the sector is surely the result of a strategy aimed at cementing the loyalty of their clients and suppliers via long payment periods for their customers and a determination to pay their suppliers relatively quickly. ▶ We should note the singular efforts made by Spain in its policy of cutting payment periods within its chemicals sector. Compared to 2006, when client payment periods were 95 days, Spanish businesses have reduced the figure by 30%. Payment behaviour in Belgium is close to that of France: reasonable payment periods and good cash flow management. Norway operates within the logic of an integrated sector, well managing its payment periods and cash flows. Indeed, despite a slight increase in payment periods in 2009, the figures are still good, with client payment periods of 40 days and supplier payment periods of 31 days, and cash flow requirements of 9 days. ▶ Italy’s heavy cash flow deficits directly result from its very long client payment periods, even despite their shortening by 8% since 2006. At 93 days, these are well beyond the limits of the European Directive entering into force in March 2013. ▶ In the United States, the chemical industry pays its suppliers an average of 40 days after invoices are issued and gets paid by its clients with a payment period on average equal to 61 days’revenue, resulting in cash flow requirements of 20 days’revenue. ▣ ▶ With shorter client and supplier payment periods and lower cash flow requirements than in other countries, the chemicals sector in the United Kingdom 20
Economic Outlook n° 1182 | Special Dossier | Payment periods Euler Hermes Client payment periods: chemicals Client payment periods in days’ revenue, 2010 80 70 60 50 40 30 ES 67 GB 30 FR 59 IT 93 SE 32 DE 46 NO 40 DK 57 BE 58 US 61 Change 20 -40% -30% -20% -10% 0% 10% 20% 30% 40% Supplier payment periods: chemicals Supplier payment periods in days’ revenue, 2010 80 70 60 50 40 30 20 10 0 Source: Euler Hermes IT 63 SE 24 FR 51 ES 46 DE 29 -15% -10% -5% 0% 5% 10% 15% 20% NO 31 BE 47 GB 28 DK 29 US 41 Change Indicateur Indicator of change in client payment periods: chemicals 20 Cash flow Tension Indicator: chemicals 50 15 10 40 5 30 0 -5 France Germany Spain 20 France Germany Spain -10 -15 Italy United States Belgium United Kingdom 10 Italy United States Belgium United Kingdom Norway Norway -20 2007 2008 2009 2010 0 2006 2007 2008 2009 2010 Source: Euler Hermes Source: Euler Hermes Client and supplier payment period gap: chemicals Italy 25 44 Spain Belgium France 7 8 10 12 10 18 Germany -9 -2 United Kingdom -18 -11 -30 -20 -10 0 10 20 30 40 50 Client payment period difference from average of 37 days Supplier payment period difference from average of 53 days Source: Euler Hermes 21
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