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  December 22nd, 2020 | Written by

Businesses in Eastern Europe Enter 2021 Battered – But Hopeful

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  • The prevailing safeguard that many businesses implemented to protect vital assets this year was trade credit insurance.
  • Businesses in Bulgaria and Slovakia experienced devastating blows to revenue and cash flow.
  • Businesses in Eastern Europe are approaching 2021 with cautious optimism.

The lasting impact of the global pandemic on businesses in Eastern Europe is yet to be seen. Atradius recently released the Eastern Europe Payment Practices Barometer, an annual survey that assesses business payment behavior throughout the world. The prevailing safeguard that many businesses implemented to protect vital assets this year was trade credit insurance.

The protection of trade receivables from the risk of customer payment default is vital for these businesses. Three out of five businesses interviewed reported that they have used trade credit insurance during the pandemic and a significant percent indicated they intend to employ credit insurance next year. This is a clear indication that businesses in Eastern Europe are taking a strategic approach to credit management during the pandemic, which is vital as the global recession continues to pose new and unforeseen challenges.

Business challenges ahead

The majority of Eastern European businesses surveyed said that a decrease in demand represents the greatest challenge to their business. Other challenges to business profitability include maintaining adequate cash flow, collecting outstanding invoices and containing costs.

Not all businesses in Eastern Europe faired the same. Businesses in Bulgaria and Slovakia experienced devastating blows to revenue and cash flow, while businesses in Turkey reported the smallest negative impacts on revenue, cash flow, and sales volume in the region.

Part of the secret to Turkey’s success is a strong, proactive approach to credit management in past years, but especially this year. Businesses in Turkey explicitly stated that they will continue using trade credit insurance in the coming years, which is a distinctive feature of Turkey’s success in the Eastern Europe economic region.

The Payment Practices Barometer has enabled us to evaluate business confidence both before and during the pandemic and recession. Some of the benchmark indicators are shocking, like an 88% rise in overdue invoices, and severe revenue shortfalls felt by almost 60% of businesses in the region during the pandemic.

The toll on industry sectors

The industries across Eastern Europe feeling the greatest shock include hospitality, tourism, and non-essential services. Certain food industries and chemicals are faring slightly better across Eastern Europe if they were able to continue production during lockdowns.

Businesses surveyed in the agri-food, chemicals, steel-metals and ICT/electronics industries mostly shared an optimistic outlook about the future of the domestic economy in their country. Those operating in the electronics industry reported 63% of respondents expecting an improvement in the domestic economy in the coming months while Hungarian businesses in this sector were the most optimistic.

Hope for 2021

Businesses in Eastern Europe are approaching 2021 with cautious optimism. After months of various lockdown measures, reduced consumption and supply-side shocks wreaked havoc on emerging and developed economies alike, a significant proportion of businesses expressed optimism and hope about the coming year. This was most clearly expressed by businesses discussing the future of their domestic economies. Businesses in Turkey and Hungary were particularly upbeat in their assessments of their respective domestic economies in 2021.

The opinion about the global economy is less bright, with 43% of survey respondents predicting a decline in the coming year. For businesses worldwide, the next months are critical. Continued lockdowns may have a severe impact on economic development and rebuilding credit.

Outsourcing credit risk management to external professionals gives businesses a powerful tool that helps securely grow revenues in an unstable time. Credit insurance is designed to help businesses trade safely with more profits while mitigating the risk of customer payment default and other financial pitfalls that can be devastating to an already struggling business.

Much of what the next six months hold is unknown. Around the world, varying degrees of shut down and business as usual are shaping the future for business in each region. With the virus not yet under control in many key economies, it is too soon to say which countries will see strong rebounds and in which industry sectors. What we can see, however, is the strategic approach to credit management in Eastern Europe helping industries securely grow their business while protecting their assets in the uncertain months ahead.

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Silvia Ungaro is a Corporate Communications Manager at Atradius, a global trade credit insurer. She is responsible for the Payment Practices Barometer survey of B2B payment behavior.