Payment Periods in Europe - Euler Hermes

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Euler Hermes Economic Outlook n° 1182 | Special Dossier | Payment periods Construction: the sector with the greatest disparities Payment periods in large part reflect the particular economic environment of the country in question. This is a domestic sector in with exceptional payment periods in some countries. > In France, the sector benefits from derogation in payment periods. Nonetheless, efforts are needed to shorten payment periods. In fact, on 14 February, the then Minister in charge of consumption, Frédéric Lefebvre, announced an intensification of monitoring measures in order to reduce payment periods deemed to be too long. In 2012, the sector is supposed to begin posting payment periods within the LME norms (45 days from the end of the month or 60 days from the invoice date). However, according to the Minister, the reality is quite different, with payment periods running between 76 and 92 days. The then government wanted to introduce an amendment to the legislation that would allow entrepreneurs to suspend work in the event of late payments on intermediate instalment invoices, the aim being to end the growing number of cases of the law being circumvented. Even though the effects of the LME and derogation agreements are impacting on payment periods, it is hard in this sector to reduce client payment periods due to the nature of the clientele (individuals, the State and state-owned enterprises in the sector). By our estimates, this impacts negatively on businesses in the sector. > Late payments are frequent in Spain, despite already long contractual payment periods, and only a small scaling back of extremely long client payment periods has been achieved, by around only half as much (-10%) as was achieved in Germany (-16%). > In Italy, the construction sector is made up of many businesses with low shareholders’capital, and the weakness in demand has translated into long payment periods and a sharp increase in cash flow requirements. > In the United Kingdom, public intervention helped sustain activity in the construction sector but acted to slow the reduction in client payment periods. The United Kingdom shows a relatively coordinated reduction in payment periods, at close to the average. > In Belgium, businesses in the building and civil engineering sector are unable to meet the client payment periods imposed by the authorities, holding back reductions in supplier payment periods in response. Government authorities and especially local authorities pay very late, a trend that is accentuating. > In the United States, we see an increase in supplier payment periods (+18%), due to a fall in demand and the large number of residences for sale. Client payment periods have also risen considerably (+46%) in this extremely poor market environment, on top of which it is also difficult for prices of new-build housing to rise. ▣ > In Germany, the strict application of late payment penalties allows a better result than does the LME as it is applied in France. As a result, payment periods are half as long as they are for French businesses in the sector. We see a coordinated reduction in payment periods and in cash flow requirements in the German construction market, now lacklustre primarily for demographic reasons. 26
Economic Outlook n° 1182 | Special Dossier | Payment periods Euler Hermes Client payment periods: construction Client payment periods in days’ revenue, 2010 200 150 100 50 DE 41 SE 47 ES 174 BE 82 FR 87 NO 63 GB 33 IT 127 DK 57 US 53 0 -20% -10% 0% 10% 20% 30% 40% 50% Change Supplier payment periods: construction Supplier payment periods in days’ revenue, 2010 200 150 100 50 BE 70 0 -80% -60% -40% -20% 0% 20% Source: Euler Hermes SE 27 FR 57 DE 28 IT 114 GB 38 ES 157 DK 38 NO 33 US 43 Change Indicator of change in client payment periods: construction 25 20 Cash flow Tension Indicator: construction 40 35 15 30 10 5 25 20 15 0 10 -5 -10 -15 France Germany Spain Italy United States United Kingdom 5 0 -5 France Germany Spain Italy United States United Kingdom -20 2007 2008 2009 2010 Belgium -10 2006 2007 2008 2009 2010 Belgium Source: Euler Hermes Source: Euler Hermes Client and supplier payment period gap: construction Spain 109 113 Italy 66 66 Belgium France 9 22 21 26 Germany -20 -20 United Kingdom -28 -10 -40 -20 0 20 40 60 80 100 120 140 Source: Euler Hermes Client payment period difference from average of 37 days Supplier payment period difference from average of 53 days 27
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