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<strong>Euler</strong> <strong>Hermes</strong><br />
24<br />
IT services:<br />
constra<strong>in</strong>ed by their clientele<br />
Major clients have the strong suit <strong>in</strong> their<br />
negotiations with IT services providers, result<strong>in</strong>g<br />
for the latter <strong>in</strong> large cash flow requirements that<br />
weaken bus<strong>in</strong>esses <strong>in</strong> the sector. Indeed, this is the<br />
sector hit hardest by the weight of its accounts<br />
receivable. As a result, it faces a large or very large<br />
scissors effect <strong>in</strong> every country apart from Sweden.<br />
Moreover, we see rigidity to a reduction <strong>in</strong> client<br />
payment <strong>periods</strong>.<br />
▶ Our study reveals very long client payment <strong>periods</strong>,<br />
but supplier payment <strong>periods</strong> that are reasonably<br />
good, or even low <strong>in</strong> some countries. The scissors<br />
effect <strong>in</strong> very big <strong>in</strong> every country, but with a more<br />
muted impact <strong>in</strong> Germany, the United K<strong>in</strong>gdom,<br />
Belgium and Sweden.<br />
Major clients have the advantage<br />
of the stronger position <strong>in</strong><br />
negotiations, result<strong>in</strong>g <strong>in</strong> large<br />
cash flow requirements that<br />
weaken bus<strong>in</strong>esses <strong>in</strong> the sector.<br />
Client and supplier payment period gap: IT services<br />
Spa<strong>in</strong><br />
Italy<br />
France<br />
Belgium<br />
Germany<br />
-24<br />
United K<strong>in</strong>gdom -21<br />
-27<br />
-18<br />
-30 -20 -10 0 10 20 30 40<br />
Client payment period difference from average of 37 days<br />
Supplier payment period difference from average of 53 days<br />
Source: <strong>Euler</strong> <strong>Hermes</strong><br />
7<br />
7<br />
15<br />
17<br />
16<br />
19<br />
24<br />
30<br />
Economic Outlook n° 1182 | Special Dossier | <strong>Payment</strong> <strong>periods</strong><br />
▶ In France, despite the LME and a strong response<br />
by the sector to cut these payment <strong>periods</strong> by 7% from<br />
2006, client payment <strong>periods</strong> rema<strong>in</strong> long, due to<br />
major public sector customers. On the supplier side,<br />
by contrast, little advance can be expected, <strong>in</strong>asmuch<br />
as their purchases consist of <strong>in</strong>tellectual services paid<br />
for on a monthly basis, and materials that are already<br />
paid for quickly <strong>in</strong> order to improve marg<strong>in</strong>s.<br />
▶ Germany for its part is see<strong>in</strong>g a reversal <strong>in</strong> its cash<br />
flow tension <strong>in</strong>dicator that risks harm<strong>in</strong>g bus<strong>in</strong>esses<br />
<strong>in</strong> the sector. Supplier payment <strong>periods</strong> are down only<br />
slightly, as the <strong>in</strong>itial payment <strong>periods</strong> were shorter<br />
and there is a sharp separation between IT services<br />
and IT equipment <strong>in</strong> the country, unlike <strong>in</strong> France. The<br />
9% <strong>in</strong>crease <strong>in</strong> client payment <strong>periods</strong> reflects<br />
weakness <strong>in</strong> demand, but Germany’s payment<br />
<strong>periods</strong> rema<strong>in</strong> among the shortest <strong>in</strong> the sector <strong>in</strong><br />
Europe.<br />
▶ The pronounced deterioration <strong>in</strong> the situation for<br />
bus<strong>in</strong>esses <strong>in</strong> the sector <strong>in</strong> the United States, and the<br />
more moderate one for those <strong>in</strong> the United K<strong>in</strong>gdom<br />
and Belgium, is due primarily to an only small decl<strong>in</strong>e<br />
<strong>in</strong> supplier payment <strong>periods</strong> and to weak demand. ▣<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
Cash flow Tension Indicator: IT services<br />
2006 2007<br />
Source: <strong>Euler</strong> <strong>Hermes</strong><br />
2008<br />
2009<br />
2010<br />
France<br />
Germany<br />
Spa<strong>in</strong><br />
Italy<br />
United State<br />
United K<strong>in</strong>gdom<br />
Belgium