Each quarter, trade credit insurance provider Euler Hermes gathers and analyzes its accounts receivables data, the findings of which can offer significant insight into the overall health of the economy, especially when considering past-due receivables.
According to reports, the most recent Euler Hermes Receivables at Risk Index suggests moderate growth in Q42014, compared with the quarter previous. The report suggests a correlation between growth domestic product and the Index at 0.7, “which is fairly high for an economic time series,” according to Euler Hermes Chief Economist Dan North, adding that the company looks “at trends in past-dues as a sign of overall financial stress by industry and across the economy overall.”
The report found a slightly worse state for receivables in Q4 than in Q3, both in terms of instances of past due invoices and the severity of those delinquencies.
When broken down by industry, Euler Hermes found that the chemicals, auto and retail markets experienced the most severe delinquencies – in each, the severity of past dues in the quarter were 20 percent higher or more than the historical average, according to reports. According to North, the downturn of the cosmetics and perfume industries, as well as the tire market, made large impacts on companies being able to settle their invoices.
While the Index found that GDP growth would be lower than what it was found to be in the third quarter, it will likely be higher than initially expected in estimates from the Bureau of Economic Analysis. North explained that the Index shoed a “slight turn down,” but nothing to be alarmed about.
Looking ahead, North said he expects stronger growth for the US economy in 2015 than what the nation saw in 2014, with an “overall GDP growth of about 3.1 percent this year.”
The issue of late payments within the B2B market has become a significant concern among many governments across the globe. As buyers struggle to pay their bills on time, suppliers are unable to manage their cash flow, forcing them to turn to lending products to continue operating. “Past-due receivables indicate that a company doesn’t have enough cash to pay all its bills that are due today,” North explained. “Revenue may not match expectations, or the company may not be able to get financing because its creditors are seeing some degree of financial stress.”
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