Record year for global payment and corporate financing – Allianz Trade

In an era marked by rapid technological advancements and shifting global economic landscapes, the dynamics of corporate finance and risk management are evolving at an unprecedented pace.

Allianz Trade has unveiled a comprehensive report that sheds light on the current state of global Days Sales Outstanding (DSO) and Working Capital Requirements (WCR).

The report provides an in-depth analysis of payment terms and corporate financing needs from a global, regional, and sectoral perspective, noting a widespread increase in WCR for the third consecutive year.

Globally, WCR expanded to 76 days of turnover, marking a two-day increase compared to 2022, influenced by decelerating economic growth and escalating operating and financing costs. The report indicates a universal trend of increasing WCR across major economic zones, with notable rises in France, Germany, China, and Japan.

“Overall, half of the countries in our sample posted an increase in WCR in 2023, and two out of five crossed the global average, notably France (+5 days) and Germany (+5) in Western Europe, and China (+3) and Japan (+3) in APAC,” said Maxime Lemerle, lead analyst for insolvency research at Allianz Trade.

Europe and US dynamics

The report outlines the dynamics between Western Europe and the United States, observing moderate WCR increases in both regions, albeit with different contributing factors. In Western Europe, inventory pressures played a significant role, especially in countries like Germany, France, and Spain.

In contrast, payment behaviors showed minimal changes at the regional level, with a slight extension in DSO being offset by a minor acceleration in Days Payable Outstanding (DPO).

A significant finding of the report was the largest increase in DSO since 2008, with a three-day rise in 2023 to 59 days. This indicates a growing number of companies are experiencing longer wait times for payments, potentially leading to cash-flow challenges.

The report also highlighted the impact of profitability on payment terms, especially in Europe, where a decrease in profitability could significantly extend payment delays.

Ano Kuhanathan, head of corporate research at Allianz Trade, suggested that “with a profitability squeeze looming in 2024, European corporates should brace for longer payment terms.”

Furthermore, the European Union’s efforts to tackle late payments through the proposed EU Late Payment regulation, which aims to shorten payment terms significantly, could have a profound impact on European corporates.

Ana Boata, head of macroeconomic research at Allianz Trade, cautioned about the potential macroeconomic effects and the competitiveness of European SMEs.

“To reduce payment terms to 30 days, European companies would need EUR2trn in additional financing. But at current interest rates, this would increase corporates’ interest payments by EUR100bn,” Boata said.

In separate news, the trade credit specialist recently introduced Allianz Trade pay, a payment solution tailored for the B2B e-commerce sector.

What are your thoughts on this story? Please feel free to share your comments below.