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Johannesburg - Expect the gap in South Africa between delivering goods and being paid for them - the so-called days sales outstanding (DSO) - as a whole to bounce back by two days to 50 days in 2015, according to Greg Nosworthy, trade-credit insurer Euler Hermes' SA country manager.
DSO is a widely recognised leading indicator of the health of firms and potential financial stress on businesses further down the supply chain.
He said this is especially due to the softening declining trend of South Africa’s insolvencies as a whole and from the fact that some sectors already started registering a rebound in insolvencies, like the mining industry.
"DSO in South Africa has been clearly below the global DSO average for five years in a row. We explain it by mainly two reasons: South Africa’s businesses have experienced strong commercial links with a few Western countries whose DSOs have always been very low such as UK and above all the Netherlands; South Africa posted a fifth consecutive year of decrease in insolvencies last year showing an improved business climate," said Nosworthy.
The global payments chain is coming under increasing pressure due to the increase in the number of days it takes to be paid for goods and services, and the challenges of economic slowdown in emerging markets and expansion in advanced economies, according to Euler Hermes.
The company has analysed the gap between delivering goods and being paid for them, called days sales outstandinDSO).
The Euler Hermes research - Payment Behaviour – Who’s Paying The Piper - anticipates that the global average DSO in 2015 will remain unchanged at 66 days for the fourth consecutive year, but that there are marked differences between the developed and emerging markets, and across individual sectors and companies.
“The data suggests companies continue to rely on extended credit terms as we see no reduction in payment periods globally,” said Ludovic Subran, chief economist, Euler Hermes.
“Companies in emerging markets are paid five days later than those in advanced economies, when they used to be paid 10 days ahead of them in 2007. Firms need to take extra care to look for signs of financial stress amongst their customers in the emerging world.”
Overall, DSO in emerging markets will increase to 69 days in 2015. Russia, China and Brazil lead this increase in past-dues. In China, typical DSO increased significantly (+22 days between 2007 and 2015).
