Western European firms face working capital challenges

• Three in five businesses across Western Europe express concern about an increase in insolvencies in the year ahead.
• This concern reflects anxiety about their capacity to maintain sufficient working capital amid longer Days-Sales-Outstanding (DSO) and an increase of bad debts.

An upward trend in bad debts impacting companies across Western Europe is evident in the increased number of businesses grappling with the problem of maintaining sufficient working capital amid longer Days-Sales-Outstanding (DSO) than this time last year. This is weighing on debt collection efficiency and raises concerns among companies about the outlook for insolvency risk during the coming months, undermining business confidence. 

These are the key findings of the May 2024 edition of the Atradius Payment Practices Barometer for Western Europe, a survey based on feedback from approximately 3,000 domestic and export suppliers in fourteen markets (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Spain, Sweden, Switzerland, The Netherlands, and the United Kingdom) and across eight sectors (Agri-food, chemicals, construction, consumer durables, electronics/ICT, machinery, steel/metals and transport).

Across the markets and sectors involved in the Atradius survey, around 20% more companies than last year report anxiety about a significant worsening of their Days-Sales-Outstanding (DSO). This is echoed by an upward trend in bad debts, currently accounting for an average of 8% of the total value of B2B sales on credit, up from 6% last year. This clearly signals a declining efficiency in outstanding debt collection among businesses in Western Europe, prompting widespread concern about the overall financial health of companies across the region. Three in five businesses surveyed say they are concerned about severe financial constraints in a challenging commercial  environment and anticipate an increase in insolvencies during the year ahead.

The Atradius survey also found business confidence in Western Europe weighed down by worries about the broader economic landscape in both the short- term and long-term (ten years and beyond). One-third of businesses express concern about the health of national economies, the impact of ongoing geopolitical tensions, and the uncertainties surrounding the monetary policy, with volatility of borrowing costs forcing companies to scale back on their access to bank credit. A significant number of respondents (44%) say they already rely on trade credit to finance their business operations. An expected increase in costs to meet sustainability goals and comply with environmental regulations going forward are also widespread anxieties for businesses across Western Europe.