Late B2B Payments Rising in Eastern Europe

The Eastern European economy is set to rise by 1.1% this year, led by growth in Poland, according to a new Atradius survey. However, respondents say trade credit risk in the form of late payments from foreign businesses is increasing.

Eastern European-based businesses surveyed by the trade credit insurer said 63.4% of their foreign business-to-business sales were conducted in cash, with the remainder using credit-based sales. Slovakia reported the least amount of credit sales at 26.7%, while Hungary was the most credit-friendly Eastern European nation, with 53.6% of sales conducted on credit.

In some countries, credit versus cash sales diverged dramatically based on whether the business was conducted with a domestic or foreign entity, Atradius said. In Turkey, spread was greatest--Turkish businesses conducted 48.1% of their sales on credit to local businesses compared with just 32.4% with foreign businesses.

Late payments are also a big issue in Eastern Europe, with some 85% of respondents seeing late business-to-business payments for invoices over the past year, with an average of 43% of invoices in the region remaining outstanding, Atradius said. Insufficient availability of funds was the main reason cited for late payment from both foreign and domestic accounts. Default rates for domestic invoices grew 3.8% this year over last, while those for foreign invoices climbed 6.6%—some 20% of respondents in the region expect DSO to worsen in the coming year. Poland reported the highest average DSO for domestic invoices at 71 days, with Turkey close behind at 63 days. More than 60% of the value of domestic invoices in Turkey was paid late this year, up from 55.2% last year.

Late payments from foreign customers also impacted Turkish businesses the most, with 53.1% of the total value of Turkish export sales on credit coming in late, up from 49.8% last year. One surprising result of the survey found that Poland reported the lowest domestic and foreign payment default rates in Eastern Europe, but also the highest days sales outstanding (DSO). “This most likely reflects the proportion of export invoices more than 180 days overdue (14.3% of the foreign receivables’ value). This is nearly three times higher than that recorded in the other countries surveyed in the region,” the firm said.

Importantly, late payments of business-to-business invoices caused 27.2% of Atradius survey respondents to delay payments to their own suppliers. Businesses in Czech Republic, Slovakia and Turkey were the most affected by this, with about 30% saying they had to delay their outbound payments. More than 18% of respondents had to take steps to correct cash flow, and 17.2% said they had revenue loss. Meanwhile, 12% of businesses in the region said they defaulted on payments to suppliers.

- Nicholas Stern, editorial associate

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