Payment Periods in Europe - Euler Hermes

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Euler Hermes Economic Outlook n° 1182 | Special Dossier | Payment periods IT services: constrained by their clientele Major clients have the strong suit in their negotiations with IT services providers, resulting for the latter in large cash flow requirements that weaken businesses in the sector. Indeed, this is the sector hit hardest by the weight of its accounts receivable. As a result, it faces a large or very large scissors effect in every country apart from Sweden. Moreover, we see rigidity to a reduction in client payment periods. ▶ Our study reveals very long client payment periods, but supplier payment periods that are reasonably good, or even low in some countries. The scissors effect in very big in every country, but with a more muted impact in Germany, the United Kingdom, Belgium and Sweden. Major clients have the advantage of the stronger position in negotiations, resulting in large cash flow requirements that weaken businesses in the sector. ▶ In France, despite the LME and a strong response by the sector to cut these payment periods by 7% from 2006, client payment periods remain long, due to major public sector customers. On the supplier side, by contrast, little advance can be expected, inasmuch as their purchases consist of intellectual services paid for on a monthly basis, and materials that are already paid for quickly in order to improve margins. ▶ Germany for its part is seeing a reversal in its cash flow tension indicator that risks harming businesses in the sector. Supplier payment periods are down only slightly, as the initial payment periods were shorter and there is a sharp separation between IT services and IT equipment in the country, unlike in France. The 9% increase in client payment periods reflects weakness in demand, but Germany’s payment periods remain among the shortest in the sector in Europe. ▶ The pronounced deterioration in the situation for businesses in the sector in the United States, and the more moderate one for those in the United Kingdom and Belgium, is due primarily to an only small decline in supplier payment periods and to weak demand. ▣ Client and supplier payment period gap: IT services Cash flow Tension Indicator: IT services 80 Spain 17 30 70 Italy 16 24 60 France Belgium 7 7 15 19 50 24 Germany -24 United Kingdom -21 -27 -18 -30 -20 -10 0 10 20 30 40 Client payment period difference from average of 37 days Supplier payment period difference from average of 53 days Source: Euler Hermes 40 30 20 2006 2007 Source: Euler Hermes 2008 2009 2010 France Germany Spain Italy United State United Kingdom Belgium
Economic Outlook n° 1182 | Special Dossier | Payment periods Euler Hermes Aeronautic components: stability in payment periods – sign of a healthy sector The sample on which we base our conclusions in this study is drawn for civil and military aeronautics activities in the different countries examined. ▶ What sets this sector apart is the extremely high level of concentration among aeronautics constructors both in Europe and the United States, whose levels of activity set the tone for subcontracting. At the end of the chain, civil aviation constructors (business or commercial aircraft, essentially in the zones examined) benefit from advances paid by the airlines ordering aircraft, staged from the signing of contracts until delivery, in order to finance the production cycle (with very high inventories and exposure). Moreover, at times there are payments on account, higher upstream in the chain, helping to ease cash flows. With the notable exception of Spain, the last three years have seen relative stability in payment periods. ▶ France, however, seems to show the impact of the entry into force of the LME, with supplier payment periods falling from 77 days in 2008 to 49 days in 2010, while in the United States, 2008 reflected the destabilisation in the sector brought about by the long strike at Boeing. This overall resistance, in the face of the difficult economic situation that affected all industrial sectors, is the sign of the excellent health of the commercial aviation sector, buoyed by nearly constantly increasing production, by contrast with business aviation, which was seriously affected by falling production and order books over the same period. ▶ Not contradicting the distinction between Northern and Southern Europe, already well demonstrated in many sectors, and despite the convergence in the sector towards a restricted number of customers, the longest payment periods are in Italy (with supplier payment periods of 60 days’revenue in 2010) and especially Spain (131 days in 2010). This situation is grounded in local practices but is also clearly due to the domestic economic environment – particularly in the case of the big lengthening in Spain, where supplier payment periods doubled between 2008 and 2010. Operators in both these countries are thus exposed to penalising consequences from the approaching application of the European Directive. ▣ Client payment periods: aeronautic components Client payment periods in days’ revenue, 2010 Supplier payment periods in days’ revenue, 2010 200 150 100 50 160 140 120 100 80 60 40 20 0 IT 67 IT 60 GB 40 ES 131 FR 65 FR 49 US 42 ES 153 DE 20 Change 0 -30% -10% 10% 30% 50% Source: Euler Hermes Supplier payment periods: aeronautic components -40% -30% -20% -10% 0% 10% 20% 30% 40% Source: Euler Hermes GB 44 US 67 DE 51 Change 25
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