Coface : Germany Corporate Payment Survey 2021

COFACE14 SEPTEMBER 2021

ECONOMIC PUBLICATIONS

PAYMENT

SURVEY

By Christiane von Berg Coface Economist for the Northern Europe region, based in Mainz, Germany

Germany Corporate Payment Survey 2021: Learning to live with the pandemic

The fifth edition of Coface's survey on corporate payment experience in Germany was conducted in July and August 20211, with 819 companies participating. This is also the second survey with German companies -n the payment behaviour of their clients

in the context of the COVID-19 pandemic. One of the main takeaways of the 2021 edition is that German companies seem to have acclimatised to the pandemic environment. Most notably, more companies are offering payment terms again (74%) compared to last year, when the figure had fallen sharply from over 80% in the pre COVID-19 period to 62% in 2020. However, companies remain cautious and still want to cash-in as soon as possible. Accordingly, the preference for short credit- terms remained unchanged: half of surveyed companies requested payments to be made within 0 and 30 days, while ultra-long credit terms (above 120 days) became extremely rare.

The surprising result from last year's survey was confirmed this year: although Germany experienced a strong recession, the number and duration of payment delays both decreased. In 2021, payment discipline even improved compared to already good results in 2020. Only 59% of surveyed companies reported payment delays, down from 68% last year2. Furthermore, the average duration of payment delays shortened by over a week, from 35.9 days in 2020 to 27.7 days in 2021. All sectors, except the two notable industries of machinery and retail-wholesale trade, reported a decline in the duration of late payments. In pharma-chemicals and

ICT3, this time-frame even shortened by over 3 ½ weeks. With an average of 17.5 days, companies in the ICT sector experienced the shortest waiting-time, while companies in the machinery sector had to be the most patient with an average delay of 35.8 days.

The business outlook from surveyed companies for 2021 and 2022 is very positive. However, this assessment must be put into perspective as it comes after a recession in 2020. 41% of participants have a positive economic outlook for 2021, while 11% see their business situation deteriorating compared to 2020. While the share of respondents with a positive outlook for 2022 remains high, it falls to 32%, reflecting lower certainty (11% remain pessimistic). Furthermore, although the effects of COVID-19 on the domestic and global markets remain a major risk, companies perceive disruptions of global production chains as the main risk for their exporting operations in 2021. Interestingly, this risk is not preventing companies from working more on international markets again, particularly in the EU/UK, China and the US. Finally, among the notable findings of our 2021 survey, it is clear that state aid remains a major feature for companies that responded. 48% of participants confirmed that they had used public support in the last 12 months, such as furlough, subsidies, loans or guarantees. While these support measures will - under current law - expire at the end of 2021 at the latest, it will be interesting to see if the extremely positive payment behaviour in Germany is the result of a strong economic recovery or that of significant public financial support and higher debt.

1 The survey was conducted between 28 June and 15 August 2021.

• This is a very positive result, also when compared internationally. For instance, in Poland, 97% of surveyed companies reported payment delays in 2020, see Coface Corporate Payment Survey Poland 2021: Amid support programmes, corporate payment delays have shortened during the pandemic.

3 ICT - Information and Communication Technologies

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2	COFACE ECONOMIC PUBLICATIONS	GERMANY PAYMENT SURVEY 2021
	PAYMENT SURVEY

CHRISTIANE VON BERG

Coface Economist,

Northern Europe

Mainz, Germany

• PAYMENT TERMS4: GERMAN COMPANIES GOT USED TO THE PANDEMIC

Chart 1:																			• According to the data of our payment survey,
Hypothetical payment terms in Germany over time5
	0 up to 30 days				31 up to 60 days			61 up to 90 days				German companies have been a bit more relaxed
									in 2021 compared to 2020 and provided more
	91 up to 120 days				120 days or above			unknown
											payment terms to their customers again. In
	Average payment terms in days (rhs)
										2020, companies were very cautious: the share of
100%	5%						6%														70	companies that offered payment terms dropped
90%										9%			8%	8%				from over 80% in the pre COVID-19 period to 62%,
80%																							60	according to last year's survey6. This trend has
36%						33%																	reversed in 2021, as 74% of companies are offering
70%													37%	37%	50
													44%			payment terms once again. German companies
60%																							40	operating on the domestic market are the main
50%	31						30					37												driver of this reversal: while only 57% of these
																	34	33	30	companies offered payment terms in 2020, their
40%
30%	56%						59%														20	share increased to 73% in 2021.
									43%			50%	51%
20%
																					10	• Short payment terms (between 0 to 60 days) still
10%
																									dominate the German business landscape. 88%
0%																								0	of companies requested payments to be made
		2016						2017					2019			2020	2021				within 60 days in 2021, which is almost unchanged
Source: Coface Payment Survey Germany 2021										from 2020 and 2019 (Chart 1). The distribution of
																											time-ranges for payment terms is also almost
Chart 2:																			unchanged from last year, which is why the
																		average payment term in 2021 decreased only
Hypothetical payment terms in sectors													marginally by around a day, from 33.5 days in
	0-30 days		31-60 days			61-90 days		91-120 days				2020 to 32.6 days in 2021. The comparison with
	above 120 days			unknown													former payment surveys indicates that, while we
																											observe a declining trend in the average payment
			Construction																			terms over the years, the level is still above that
			Agri-Food-Wood																			of 2016 and 20177.
					ICT
		Pharma-Chemicals
			Machinery
				Metals
Retail-Wholesale Trade																			The average credit period
			Transport
			Automotive																			decreased marginally by
			Paper-Packing
																					around one day, from 34 days
			Textile-Clothing
																										in 2020 to 33 days in 2021.
		0%	20%	40%		60%	80%	100%

Source: Coface Payment Survey Germany 2021

• Payment term - the time-frame between when a customer purchases a product or service and when payment is due
  5 Due to technical reasons, Coface did not publish a Corporate Payment Survey for Germany in 2018
  6 Coface Germany Corporate Payment Survey 2020: German companies have switched to "crisis-mode" and offer less payment terms 7 Due to technical reasons, Coface did no publish a Corporate Payment Survey for Germany in 2018

SEPTEMBER 2021

COFACE ECONOMIC PUBLICATIONS	GERMANY PAYMENT SURVEY 2021	3
PAYMENT SURVEY

Chart 3:

Average payment terms (days)8

2021	2020
	Construction		15.0		24.4
Agri-Food-Wood			27.9
						35.3
				30.0
	Machinery							38.2
					32.3
Pharma-Chemicals
							31.7
	Average								32.6
	Transport				27.5	32.7	33.5
	Metals							33.5
									34.3
	ICT								33.5
Retail-Wholesale Trade							33.0	35.4
				32.2
			37.5
Paper-Packing				30.0
	Automotive						37.5	43.8
Textile-Clothing									37.5		47.0
	0	20					40	60

Source: Coface Payment Survey Germany 2021

• Looking at sectors, construction still has the shortest payment terms: almost 75% of participants expect their invoices to be paid within the first 30 days (Chart 2). In 2021, 7 out of 11 sectors offered payment terms longer than 90 days, while ultra-long payment terms (above 120 days) have become very rare. Only 0.2% of participants offered them in 2021, all of them in the metals sector.
• While the average payment terms of all participating companies has changed only slightly, changes in individual sectors were noticeable in 2021 (Chart 3). Strong increases - of almost 10 days - were observed in the construction sector and the textile-clothing sector. Conversely, machinery (-8.2 days), agri- food-wood(-7.3 days) and automotive (-6.3 days) reported the strongest declines in payment terms. As indicated above, construction remained the sector with the shortest payment terms

Chart 4:

Reasons for offering payment terms

(24.4 days), while textile-clothing became the most generous sector - replacing automotive - and is now asking for payments to be settled up to 47 days after the delivery of a product or a service, on average.

• The answers in our survey hint that the uncertainty around the COVID-19 crisis has declined in 2021, but that companies remain vigilant. More companies are offering payment terms in Germany, but those have shortened slightly, suggesting that companies are still eager to cash-in as early as possible. When asking about the reasons behind the availability of payment terms, our participants primarily named market standards. This share has actually increased and is now back at 47% (around the pre COVID-19 level). In contrast, less companies (15% in 2021 vs. 22% in 2020) cited tight liquidity for their customers as a reason to offer payment terms, and only 1% explicitly cited the effects of the COVID-19 crisis in 2021 vs. 4% in 2020 (Chart 4).

2021	2020
	Market standard
Tight liquidity of customers
Credit risk is insured
Confidence in customers													IN 2021
Market competition													%
	COVID-19
	Others													74
														OF SURVEYED PARTICIPANTS
	Unknown												$	offered payment terms again.
													This is more than in 2020
	0%	10%	20%	30%	40%	50%
	(62%), but less than in
Source: Coface Payment Survey Germany 2021										the pre COVID-19 period (81%).

8 We ask our participants to give answers in time-ranges. As our lowest category is 0 to 30 days, the minimum average payment term is 15 days in our survey.

SEPTEMBER 2021

4

COFACE ECONOMIC PUBLICATIONS

GERMANY PAYMENT SURVEY 2021

PAYMENT SURVEY

2PAYMENT DELAYS9:

COMPANIES GET PAID FASTER

Chart 5:

Share of companies reporting payment delays by sector

2019   2020   2021  

120%
100%
80%							59%							67%	70%
							59%		62%		62%	63%
						55%	60%
60%		49%	55%	55%
40%
20%
0%
	-Wood	-Packing		Trade	ICT	Average	Machinery	Construction		Metals	Automotive	Transport	-Clothing
	Food	-Chemicals
-		Paper
Agri		Pharma	-Wholesale									Textile
			Retail

Source: Coface Payment Survey Germany 2021

Chart 6:

Hypothetical payment delays in sectors

0-30 days   31-60 days   61-90 days  91-120 days 121-150 days   more than 150 days   don't know

ICT

Transport

Metals

Pharma-Chemicals

Agri-Food-Wood

Retail-Wholesale Trade

Automotive

Construction

			Machinery
	Paper-Packing
	Textile-Clothing
		0%	20%	40%	60%	80%
Source: Coface Payment Survey Germany 2021
Chart 7:
Average payment delays (days)
	2021		2020					17.5
			ICT														42.9
									19.2
			Transport								27.9
									21.4
	Pharma-Chemicals																	47.7
			Metals							24.8						38.4
			Average										27.7		35.9
	Paper-Packing									28.031.7
	Agri-Food-Wood									28.0				42.0
										28.2
		Construction												35.9
		Automotive													28.7			37.3
Retail-Wholesale Trade									26.5		29.3
	Textile-Clothing										30.7			36.5
			Machinery													35.8
															28.7
		0	10		20		30			40		50

Source: Coface Payment Survey Germany 2021

• Since the publishing of our previous payment survey in 2020, the number of payment delays decreased further. In 2021, only 59% of surveyed companies reported late payments, while 68%

of all companies had reported delays in 2020. With the exception of transport and metals, the numbers of payment delays decreased in all sectors in 2021. However, while less than half of companies in the agri-food-wood sector reported late payments, the figure was at 70% in the textile-clothing sector (Chart 5).

• The ICT sector is where companies wait the shortest time before payment. In this sector, the vast majority of surveyed companies reported

100%	delays no longer than 30 days and no company
	indicated delays above 60 days. In contrast,

metals was the only sector to report delays of over 150 days (2%) (Chart 6). This is a significant improvement from 2020 as then, in addition to the metals sector, companies in construction and paper-packing also reported ultra-long payment delays.

• The average duration of payment delays decreased accordingly by 8 days, from 35.9 days in 2020 to 27.7 days in 2021 (Chart 7), which the shortest average delay in our time series10. All sectors, excluding machinery and retail-wholesale trade, reported a decrease in the duration of payment delays. The strongest declines were in pharma-chemicals(-26 days) and ICT (-25 days). Companies operating in the latter have now the shortest waiting time with an average of 17.5 days, while companies in the machinery sector need the most patience with an average waiting

60 time of 35.8 days. This is still short in historical perspective, given that in 2017, all companies in

9 Payment delays - the period between the due date of payment and the date the payment is made 10 The first Coface Corporate Payment Survey for Germany was published in 2016.

SEPTEMBER 2021

COFACE ECONOMIC PUBLICATIONS	GERMANY PAYMENT SURVEY 2021	5
PAYMENT SURVEY

our survey had to wait 41 days on average for the payment of their invoices.

• Adding payment terms (if any) to payment delays indicates the total waiting time between the purchase of a product and the payment of the invoice. This indicator - known as days sales outstanding (DSO) - decreased from 56.5 days in 2020 to 51.1 days in 2021, on average. The fastest paying sector is ICT, with a hypothetical DSO of 42 days in 2021. Textile-clothing became the sector with the longest DSO, where companies have to wait an average of 77.7 days, replacing the pharma-chemicals sector, which had the longest DSO in 2020 with 71.3 days on average.
• According to our survey results, the reasons behind payment delays are mainly related to financial difficulties (46% in 2021). When asked about the reason for the financial difficulties, opinions were split. 20% cited lower demand in Germany, primarily due to lockdowns. Interestingly, another 20% cited the lack of financing options, even though COVID-19 public financing support programmes are still in place. However, this could be also a sign of normalization as, on average for the three years prior to the COVID-19 pandemic, 24% of participants identified this as an issue. Participants also answered high competitive pressure (14%), weak

demand from abroad due to lockdowns (11%) and problems in the global supply-chain (10%) as reasons for financial difficulties.

• The financial risks associated with late payments for German companies are low in 2021. Only 4.4% of participants reported that the share of overdue payments between 6 months and 2 years represents 2% or more of their annual turnover. This represents a decrease of 3.1 percentage points compared to 2020. However, in sectoral comparison, the result is different. While no company in agri-food-wood and pharma- chemicals reported a higher share of longer payment delays relative to their annual turnover, 17% of companies in the textile-clothing sector confirmed this situation for 2021.

The duration of the average payment delay decreased by 8 days, from 36 days in 2020 to 28 days in 2021.

  ECONOMIC EXPECTATIONS

• COMPANIES WILL WEATHER THE STORM WITH THE HELP OF THE STATE

Chart 8:

What is/was the business outlook of your company

for the year 2020, 2021 and for the year 2022? (figures in balance points11)

2022   2021   2020  

Textile-Clothing									7					47
										37
Automotive												47
												37
ICT												29
Retail-Wholesale Trade												30
											31
Machinery												28	40
Average										21		30
Agri-Food-Wood									15	18
Metals										18				54
								16
Pharma-Chemicals										34
								10
Paper-Packing
								15
Transport									7
								7
Construction									4
								19
-80	-60	-40	-20	0	20		40	60

Source: Coface Payment Survey Germany 2021

• Companies' assessment of the economic outlook for the remainder of this year and the next is cautiously optimistic. 41% of participants have a positive economic outlook for 2021, while 11% think that their business situation will deteriorate compared to 2020. In total, the balance of answers (+30 points) marks a sharp reversal from a very pessimistic year 2020 (-37 points). The more optimistic outlook can be observed in every sector, with the biggest rebound in sentiment in the metals and automotive sectors. The outlook for 2022 is also positive, but seems less certain (down to +21). The textile-clothing sector is the most optimistic for 2022 with +47 balance points. However, this sharp improvement in sentiment should be put in perspective with the very difficult situation in 2020 and 2021 for this sector in particular. The same is true for the automotive sector, where the positive outlook is rebounding after falling in the doldrums in 2020 (Chart 8).
• According to our survey results, the main risk for export operations in 2021 is - by far - disruptions of global production chains, which was cited by 40% of participants (Chart 9). Rising non-oil commodity prices is also a big topic in 2021 (20%), followed

11 Balance points = share of people expecting a better economic situation than the year before - share of people expecting a worse economic situation than the year before

SEPTEMBER 2021