Payment Periods in Europe - Euler Hermes

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Euler Hermes Economic Outlook n° 1182 | Special Dossier | Payment periods Pharmaceuticals: no cash flow problems Supplier payment periods seem generally shorter than client payment periods in the pharmaceuticals industry. Depending on the country, however, we see an uneven picture in how payment periods are developing. The laboratories’advantage of enjoying comfortable cash flow surpluses from their operations resides in their ability to pay their suppliers more quickly and thus benefit from financial discounts. This is more profitable than placing their funds at low rates of interest. In France the rate of non-payment and insolvencies in the chemicals sector overall is markedly higher than in the pharmaceuticals segment. ▶ Payment periods are well below 60 days in the sector in the United Kingdom, Germany and Denmark. The very short payments benefiting their suppliers, which even occasion cash flow requirements in Germany and Denmark, is a means of consolidating their ties with their partners, allowing them to benefit from, among other things, financial discounts. ▶ By contrast, in Spain (-50), Italy (-50) and in the United States (-55), the industry suffers from a harmful scissors effect. The length of payment periods that businesses grant their customers is very generous, when it is not the result of (as in Spain) the financial woes of their hospital clientele. Unlike in the United States, however, Spain and Italy are not relaxing their efforts to attempt to shorten payment periods (-11% and -6% since 2006 for client payment periods in Spain and Italy respectively, compared to +49% in the United States). ▶ Cash flow management by United States pharmaceutical companies seems notwithstanding driven by a more aggressive commercial policy. Lengthening clients’payment periods is also a way of reinforcing their loyalty and helping them to avoid difficult bank lending conditions – in sum, the expression of a policy more financial than industrial in nature on the part of the United States pharmaceuticals sector. The length of these payment periods, which continue to grow, does put the United States at the bottom of the class in this sector in terms of the length of payment periods and of efforts made to attempt reducing them (client payment periods up by 49% and supplier payment periods up by 43%). ▶ Apart from a rebound in payment periods in 2009, the French pharmaceutical industry, fifth in the rankings, is not letting up on its efforts to shorten them. In 2010, these were down by 10 days against 2006, with cash flow needs of 14 days’revenue, well below the figure for Germany (30 days), Spain (49 days), Italy (50 days) the United States (55 days) and Denmark (14 days). Committed to cutting average payment periods, the pharmaceuticals sector in Frances does not benefit however from the advantage it gains by obtaining discounts in return for rapid payment to its suppliers. ▣ 22
Economic Outlook n° 1182 | Special Dossier | Payment periods Euler Hermes Client payment periods: pharmaceuticals Client payment periods in days’ revenue, 2010 120 100 80 60 40 20 0 FR 66 ES 85 IT 90 GB 36 DK 38 BE 63 NO 25 -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% SE 11 DE 46 US 93 Change Supplier payment periods: pharmaceuticals 70 Supplier payment periods in days’ revenue, 2010 60 50 40 30 20 10 FR 52 IT 40 NO 16 DE 16 BE 54 DK 20 GB 31 ES 35 SE 11 US 38 Change 0 -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Source: Euler Hermes Indicator of change in client payment periods: pharmaceuticals 30 25 20 15 10 5 0 Cash flow Tension Indicator: pharmaceuticals 80 70 60 50 40 -5 -10 -15 -20 -25 -30 2007 2008 2009 2010 France Germany Spain Italy United Sates United Kingdom Denmark 30 20 10 0 2006 2007 2008 2009 2010 France Germany Spain Italy United States United Kingdom Denmark Source: Euler Hermes Source: Euler Hermes 23
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Payment Periods in Europe - Euler Hermes

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