Cash & Liquidity ManagementLiquidityEastern Europe foresees liquidity pressure and greater trade credit risk

Eastern Europe foresees liquidity pressure and greater trade credit risk

A recent survey has found that businesses across Eastern Europe are wary of increasing pressures on liquidity and are concerned about a rise in trade credit risk, with a potential global economic slowdown exposing structural issues in the region.

With GDP growth in Eastern Europe forecast to slow next year from 3% to 2.5% as a result of easing export trade stimulus from the eurozone, the region’s businesses are expected to experience pressure on their liquidity positions and greater trade credit risk.

According to the September 2018 edition of the Atradius Payment Practices Barometer for Eastern Europe, which surveyed more than 1,400 domestic and export suppliers across Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia and Turkey, 25% of businesses expect their Days Sales Outstanding (DSO) to rise over the next 12 months. Just 13% expect their DSO to decrease.

Higher DSO rates can adversely affect companies’ liquidity positions, leading to increased trade credit risk. The countries with the highest levels of concern are Turkey (43%) and Romania (30%).

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

According to Andreas Tesch, chief market officer of Atradius N.V., “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 behavior 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.”

Payment problems

Payment delays due to insufficient availability of funds by domestic B2B customers in Eastern Europe increased significantly (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.

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 barometer also examined 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 by 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 was the biggest concern among survey respondents (37.7%).

The full report can be read here.

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