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Atradius economists predict a decline in global GDP of 4.3% in 2020. This means the negative impact of COVID-19 is bigger than that of the financial crisis during 2008/2009. Risks to the current forecast are to the downside as many countries are tightening quarantine measures to deal with a resurgence of infections and insolvencies are expected to accelerate.
Although the economic impact of the 2020 pandemic has been severe and swift, the latest Atradius Payments Practices Barometer survey results for Europe shows a region battered, but not beaten by the virus. However, the pandemic has plunged the Eurozone into recession and businesses may need more government intervention next year.
Every country polled in the region reported an increase in late payments and lengthening of DSO compared to pre-pandemic levels. Respondents in the the UK and the Netherlands reported year-on-year increases in overdue invoices of 81% and 75% respectively. Eastern Europe, reported an average increase of 88%. A significant percentage of businesses reported a negative impact on cash flow and revenue, particularly in Bulgaria and Slovakia.
Clear new trends have emerged with businesses altering their payment practices in response to the economic downturn. Many businesses increased payment terms. The majority did so in a bid to increase their competitiveness and encourage sales. However, a sizeable proportion reported providing credit to support their customers with short-term finance.
Despite a dramatic surge in late payments and a substantial number of businesses reporting liquidity stress, business confidence is largely buoyant. Although many countries are now entering a second lockdown, significant numbers of businesses are optimistic about the outlook for next year.
Much of this apparent business confidence has been driven by government support. Although differing in approach and scope, many governments in the surveyed countries enacted business support programmes. Continued support will be vital for many businesses next year. The insolvency environment is likely to be heightened, with travel, tourism and hospitality sectors expected to be hardest hit.
However, like the virus itself, there are many unknowns. Much will depend on the evolution of the virus and the efficacy of any potential vaccine. In the meantime, businesses plan to use a range of credit management techniques to protect their cash flow.
World trade is expected to shrink by about 15% this year. Without exception, every country polled in Europe reported an increase in late payments, which corresponds to an average two-thirds increase on pre-pandemic figures for the whole region. For several years to come, global and local economies will have to cope with the effects of this crisis, which is likely to have a substantial impact on corporate insolvencies.
However, the results of our survey in Europe reveal that businesses throughout the region are reacting firmly to the challenging economic conditions, and protecting their accounts receivables from the risk of insolvency in a strategic manner. A significant proportion of survey respondents stated their businesses have used credit insurance during the pandemic, and intend to continue using it next year. This is a clear message that businesses are fighting back, building trade where possible.
Looking forward to 2021, it is encouraging to see how many businesses remain optimistic about the future
The Atradius Payment Practices Barometer survey was conducted during the first wave of the COVID-19 pandemic with businesses from 13 countries across Eastern and Western Europe. The results were benchmarked against last year’s poll to provide clear pre-pandemic to pandemic trends. Survey reports can be found on each country and region in the Publications section of the Atradius website.