Payment periods in - Euler Hermes

Euler Hermes
20
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.
▶ With shorter client and supplier payment periods
and lower cash flow requirements than in other
countries, the chemicals sector in the United Kingdom
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. ▣