Go west but tread carefully

Bad news thrive, but survey says western Europe is rising up.

Pick up a newspaper, watch the TV business reviews, check online newswires: the story’s the same: Western Europe is battling an epidemic of diminishing business and consumer confidence, falling demand and spiralling debt. Of course, that is what you might expect from news channels. They thrive on bad news. In fact, to some, the only news
worth reporting is bad news. The economic downturn of 2008 marked a sea change in the career prospects and earnings power of economic journalists and broadcasters, many of whom have found themselves transformed from grey suited backroom boys – reeled out for a two minute comment on the exchange rate mechanism – to near rock star status, with interviewers and audiences alike hanging on their every word, even if we truly understand only half of what they say.

That’s the news. The question is ‘Does it accurately reflect the true picture – or indeed, does bad news of this kind become a selffulfilling prophecy?’.

Keeping the balance
At Atradius, while we of course value the analysis and forecast of economic experts, we also balance that by seeking the views and first-hand knowledge of those at the very forefront of national and international trade – and factoring their experience into our trade risk assessment. The Atradius Payment Practices Barometer, a survey of business of all kinds across the world, asks those at the ‘sharp end’ of commerce and trade for their views and experiences. Are their business-tobusiness customers paying on time, late – or at all? What steps are they taking to keep their cash flow healthy, encourage early payment and avoid bad debts?

Indispensable analysis Atradius’ latest Payment Practices Barometer surveys business experience in Western Europe, and it serves as a useful guide to any business in Hong Kong that is already trading in Europe, or has an eye on Western European countries as a potential market. The reason? It’s that, if you were to make strategic sales decisions on the basis only of what you’ve gleaned from news channels, you would be missing out on the valuable insights of those who are actually doing business - and on Atradius’ unique analysis.

Take the survey responses to the question ‘What percentage of the total value of your B2B invoices are overdue?’ While it may come as no surprise to see businesses in Greece, Italy and Ireland – three Eurozone countries at present struggling to get their economies back on track – reporting a sizeable volume of late payments from their domestic customers (41% in the case of Greece), it may come as something of a shock that German survey respondents also report a considerable level of late payments from their domestic customers (31%). While over half of Germany’s late payments are settled within 15 days of their due date, that still leaves many debts languishing: some to over 90 days late.

Sales norms
In many respects though, most of the surveyed companies in Germany, together with those in Austria, Sweden, Great Britain, The Netherlands, Denmark, and Switzerland, keep a tight rein on their exposure to the risks of non-payment by restricting their contractual payment terms to no more than 30 days credit. Potential suppliers from Hong Kong may therefore consider this to be an acceptable norm for their sales to these countries, although clearly terms of payments are a matter for agreement between the contractual parties.

Bright future ahead
To return to how I began this article, stories of economic doom and gloom may keep newspapers and economists busy, but many of the businesses surveyed by Atradius, while acknowledging that financial trading risks may not lessen over the rest of 2012, nevertheless saw them bottoming out. Notably, over 72% of Dutch and 78% of Danish respondents believe that the risks will remain unchanged or decrease, while the same goes for a massive 84% of Turkish and Swedish respondents. However, when analysed by trade sector across Western Europe, wholesalers and retailers were the most pessimistic about their short-term trade credit risks. Could that be the inevitable outcome of bad news influencing consumer confidence?

Whichever way the economies of Western Europe go, credit insurance provides vital protection against unforeseeable financial risks. And, on the positive side, by assessing the creditworthiness of your prospective B2B customers, credit insurers act a signpost to the potentially most worthwhile sales prospects.

You can download Atradius’ detailed Payment Practices Barometer from www.atradius.com.hk

Matthew Cockerill, Atradius Country Manager - Hong Kong

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