Euler Hermes survey: CFOs, most concerned about non-payment

Top priority: working capital

In February 2020 most finance managers had an optimistic view of the year, despite climate change, growing protectionism and the increase of political risk. This trend also arose from The Finance Leader of Tomorrow, a large-scale survey conducted by Euler Hermes amongst over 1,000 CFOs. In early February two out of three financial leaders were still assuming that both turnover and profit would rise. Big companies, in particular, were making optimistic projections. This trend was nourished by rising sales and profits, thanks to a better economic situation in Europe and the deployment of new technologies.

Enter coronavirus

COVID-19 undermined the confidence of CFOs in an instant. Prior to the pandemic, 50% of CFO’s interviewed provided confident stances on the evolution of global economy. After COVID-19 hit, the rate has dwindled to barely 36%. The virus is racing around the heads of financial experts, too. Stress and fear are spreading. Those interviewed are concerned above all about deferred payments and sales as profit margins are under pressure.

Working capital is the top priority

Coronavirus is forcing financial managers to change paths regardless.

Reminder: Euler Hermes is assuming that the world economy will contract by 4.7% in 2020 and that the recovery will be slow. This new reality is making financial decision-makers change tack. The focus today is on maintaining the level of working capital, whilst prior to the the crisis, leverage was a top priority.

Constant: technology

It is striking to note that confidence in technology is and remains high. Prior to the pandemic, 22% of those interviewed said they wanted to invest in new technologies. After the outbreak, that figure remains virtually unchanged at 21%. It comes as no surprise that technology is a constant. Last year for example, it had the biggest positive impact on companies.

Financial managers are particularly interested in 5G, artificial intelligence, the Internet of Things, business intelligence and modelling.

CFOs want to use technology to bring down costs, increase income and serve customers better. The other side of the coin is that the increased use of technology also involves risks. For instance, companies are more exposed to cybercriminals and online fraud. Moreover, under the current circumstances it is not easy to make a technological quantum leap. Many employees are working from home with a limited cash flow.

Bankruptcies: snowball effect

Coronavirus or not, the most frequently occurring risk for companies is and remains late payment. Over half of companies had to deal with this issue last year. One in three companies were already dealing with insolvent customers. The coronavirus crisis is just making things worse. The number of bankruptcies worldwide is expected to rise by no less than 35% by the end of 2021 (+26% in Belgium, +31% in Luxembourg).

Surprisingly, barely one company in three says it is prepared for this. In-depth conversations with CFOs point to a great fear of a snowball effect. Non-payment and bankruptcies can set off a chain reaction that can impact on many economic players. Even big companies are not prevented.

Remedies against payment risks

So now more than ever, arming yourself well against payment risks is the message.

CFOs put forward three remedies: planning, diversification and insurance.

To start with, companies can implement pro-active cash management and set out various scenarios. Amongst other things, they need to screen customers for insolvency.

In addition, business leaders do well not to put all their eggs in one basket. Companies with a wide product range that serve various sectors are best placed.

Many CFOs also stress the importance of credit insurance. Working with a reliable credit insurer is essential, according to Markus Schneider, CFO of the Germany company Kerberos Management.