25% of businesses surveyed in the region expect an increase in DSO over the coming 12 months
Eastern Europe is forecast to grow a steady 3.0% this year, mainly due to robust domestic demand. However, this strong momentum is expected to ease to 2.5% in 2019, as regional GDP growth eases and the export trade stimulus from the eurozone cools off. This is forecast to weigh on Eastern European businesses' liquidity position, potentially triggering an increase in trade credit risk.
The September 2018 edition of the Atradius Payment Practices Barometer for Eastern Europe, a survey based on feedback from over 1,400 domestic and export suppliers across Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia and Turkey, reveals that 25% of respondents in Eastern Europe expect their DSO (Days Sales Outstanding) to increase over the coming 12 months (this compares to 13% of respondents expecting a decrease over the same time frame). A longer DSO may adversely impact businesses' liquidity position, thus increasing B2B trade credit risk. The most worried about this are respondents in Turkey (43%) and Romania (30%).
Payment delays due to insufficient availability of funds by domestic B2B customers in Eastern Europe increased markedly (68.8% of respondents reported this, up from 58.4% last year). Nearly 31% of respondents reported that domestic B2B customers pay invoices late as they use outstanding invoices as a form of financing. Moreover, domestic B2B receivables were reported to be uncollectable most often due to the customer being bankrupt or out of business (64.2% of respondents, up from 55.8% last year). However, many Eastern European respondents invoicing electronically have noticed an improvement in speed of payment. Nearly 66% of respondents invoiced their B2B customers online over the past year.
The Atradius Payment Practices Barometer for Eastern Europe also reports businesses' opinions about the biggest risks to global economic growth in the coming six months. Global economic growth continues to strengthen and is forecast to accelerate 3.2% in 2018. At the same time, risks to the outlook have increased with US protectionism, US Fed policy, China's "hard landing" and geopolitical risk growing significantly. The risk that protectionism escalates into a trade war in the coming six months rose the most concern amongst survey respondents (37.7%). The was most evident in Turkey (53.1% of respondents).
Andreas Tesch, Chief Market Officer of Atradius N.V. stated, "2018 promises to be another year of strong growth, with global GDP growth pushing up to 3.2%, the highest level since 2011. However, the chances of long-term economic growth are deteriorating for the export-oriented economies of Eastern Europe, which are closely ingrained in European supply chains. A slowdown of the global economy may expose some structural issues, peculiar to Eastern European economies, weighing on their growth. This could trigger an increase in trade credit risk. Against this backdrop, it is essential to pay close attention to the payment behaviour of buyers and limit payment default risks through credit insurance protection. This can enable businesses trading with Eastern Europe to expand growth opportunities, improve cash flow and protect profitability."
Atradius is a global provider of credit insurance, surety and collection services, with a strategic presence in over 50 countries. The credit insurance, bond and collection products offered by Atradius protect companies around the world against the default risks associated with selling goods and services on credit. Atradius is a member of Grupo Catalana Occidente (GCO.MC), one of the largest insurers in Spain and one of the largest credit insurers in the world. You can find more information online at https://group.atradius.com