There’s a long list of issues to consider when starting to export, from customs declarations to currency rates. But there’s one that needs to be at the top of the list: getting paid.
Exclusive data from Euler Hermes can bring clarity. Based on 36 countries and drawn from a panel of 24,000 listed companies worldwide, the data identifies which countries have a culture of prompt payment of business invoices — and which process payments at a snail’s pace.
It's valuable market intelligence when any company is starting to export or planning to launch in new export destinations. For instance, mid-sized engineering firms in the UK may be looking at Spain or Italy, traditionally strong export markets for this sector. Official data shows UK exports of machine tools and electronic equipment to these two countries exceeded £1bn in 2020.
But any firm starting to export needs to know that companies in Spain and Italy are among the world’s slowest to pay. The typical business invoice in Italy waits 89 days to be paid, with Spain taking 80 days. Export the same equipment to the Netherlands and, on average, payment will arrive about a month earlier.
Euler Hermes calculates these figures using days sales outstanding (DSO) data from 24,000 companies in 36 countries. China emerged as the country with the slowest payments, taking 94 days; New Zealand the fastest, taking an average of 37.
There are important caveats. Due to a lack of data, a few important UK export markets are missing, including Ireland, and payment speed is also influenced by sector. Suppose you're in an industry with notoriously slow payment, such as chemicals and pharmaceuticals. In that case, late payments for exports may be standard no matter which country you choose.
Culture is an important issue to consider in exporting and plays a part in the speed of payment. The data shows a clear dividing line in Europe between the prompt, efficient payment in the north and the more relaxed timescales accepted in the south.
In this respect, the UK is firmly in the Northern European tradition. Although UK SMEs (quite rightly) complain about delayed payments, the data proves that UK plc is a relatively prompt payer by global standards, taking on average 51 days to settle an invoice. That's very close to Germany (50 days) and faster than Sweden (58 days) or Denmark (54 days).
National payments behaviour changes slowly. This explains why the data is still valuable even though it is based on 2020 company accounts. True, the pandemic slowed payments a little. The global average stretched to 66 days, from 64 in 2019, but the overall ranking was almost unchanged. Some slow-payment countries saw payment times stretched even longer; for instance, in Turkey payments went from 76 days to 82. However, payment times improved a little in some European countries where the government provided extensive cash support to businesses.
Export payment: getting paid faster
Companies exporting to countries that are slow payers can take steps to reduce risk. For instance, France is often considered a priority export market for UK firms selling perishable goods or those where transport costs are high relative to their value. However, the average payment time is a relaxed 69 days. In part, this is due to local payment terms: some contracts stipulate payment will be made 45 days after the end of the month an invoice is received. This means payment may be received a yawning 75 days after invoice and still be within contract terms.
What can UK exporters do to avoid late export payments? One step is to ensure that expectations are understood at the start of any international trading relationship, backed up with unambiguous contracts and other paperwork. A “retention of title” clause that allows the goods to be seized if payment is not made can be effective in some situations.
Euler Hermes’ series of mini-podcasts 5 Minute Tips includes extensive information on this, helping companies that are new to exporting get speedier payment (as well as advising on practical action when overseas customers fail to pay).
Another solution, of course, is for exporters to use financing solutions such as invoice finance, which means they get paid just a day or two after sending an invoice. Although our Invoice Finance Buyer’s Guide focuses on domestic payments, most of its advice is relevant for export finance too. As the guide explains, some variants of invoice financing allow the messy business of chasing customers for payment to be, in effect, outsourced. This can be doubly helpful if there are time zones or language barriers to wrestle with. However, invoice finance comes at a cost that is likely to be higher for countries with poor payment records.
Starting to export: the “Golden 8”
Payment speed is important, but there are many other factors to consider when selecting a target export market. So, what's the best way of creating a shortlist?
For this analysis, we created a "Golden 8" list of export destinations, which mixes the UK's top 5 trading partners with countries for which a post-Brexit trade deal has been signed or is under negotiation. (The same shortlist is also used when analysing exports by the Office of National Statistics.)
In the list, Australia and Japan are traditionally export markets for UK manufacturers of machinery and capital goods. Based on the data, Australia looks like a better prospect if you want to avoid late payments for exports. For UK food exporters, France, USA, Netherlands, China, Germany and Australia are all top 10 export destinations. If you want to get paid on time, this shortlist provides guidance on which market to examine more closely.
Find out more about export payment
To explore this data in more depth, visit Euler Hermes’ Mind Your Receivables online tool. This gives a detailed look at the data and also shows year-on-year trends.
Although this data can help understand the risk of late payments for export, it does not quantify the risk of non-payment, which may be a severe threat to cash flow. Trade credit insurance can help you address this risk. It can provide protection not only in the event of customer default, but against other events such as governments cancelling contracts, or imposition of export controls that make contract fulfilment impossible.
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