Atradius’ data reveals average payment DSO soared to 100 days
Atradius Payment Practices Barometer has revealed that the Steels and Metals sector has seen a two-fold increase in companies cutting payment terms, in response to an upward spike in payment delays and defaults.
Amid falling demand, companies in the industry are shortening their payment terms for B2B customers in order to protect profits and speed up cash inflows.
Other measures include dedicated additional time and resources for chasing unpaid invoices and offering discounts for early repayment.
This is in response to a 45% rise in companies that took three months longer than last year to collect cash from B2B customers, with the average period for payments to be made hitting 100 days.
Of the businesses the insurer spoke to, half (52%) put this down to customers experiencing cash flow problems.
However, Atradius reveals that these measures are having an impact despite the current economic climate, with the number of invoices paid late or written off reducing to 44% from 51% in 2021. Bad debt write-offs also significantly reduced, almost halving to 5% this year.
Atradius conducts a review annually into corporate payment practices and spoke to businesses in the UK Steels and Metals sector to find out more about the challenges they are facing, and their view on the outlook for 2023.
Almost two-thirds of businesses anticipate a tough year ahead, with the challenge of fixed contracts within the industry meaning companies aren’t able to pass on price increases, on top of concern for increasing Days Sales Outstanding (DSO) into 2023.
However, a third (35%) of companies are optimistic about business growth due to trading on credit, with an anticipated stronger focus on strategic credit management and insurance into the New Year.
Richard Reynolds, head of strategic accounts at Atradius UK said: “The current economic climate of rising costs, combined with the ongoing pandemic fallout has made this a challenging year for the UK Steels and Metals industry.
“Particularly given the sector’s use of fixed contracts, meaning rising costs can’t be passed on, creating an even more challenging environment. However, it’s been positive to see businesses focusing on protecting cash flow, prioritising extra time and resource for protecting profits.
Reynolds continued: “Looking forward into 2023 and with insolvency a real risk, businesses will need to continue to do all they can to protect cash flow and mitigate the risk of a large customer failing unexpectedly.
“Payment defaults have a domino effect on supply chains, but this is where trade credit insurance is vital as it allows firms to protect the bottom line, and support them through the uncertain and unpredictable times.
“It’s positive that we’re already seeing recognition of this within the sector and we anticipate we’ll see a stronger focus on strategic credit management and credit insurance into the New Year.”