Payment periods in - Euler Hermes

Euler Hermes
22
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
Economic Outlook n° 1182 | Special Dossier | Payment periods
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. ▣