Trading on open account? Annual review of international DSO's gives interesting insights

Euler Hermes has issued its annual review and forecast of global average Days Sales Outstanding (DSO), based on a sample of 25,000 listed companies across 20 sectors and 36 countries. Days Sales Outstanding (DSO) is a measure of how long it takes companies to collect cash from customers - the ratio is calculated by dividing the accounts receivable by the total revenue of a company on one year and then multiplying it by 360.

Euler Hermes’ study shows that after hitting a 10-year high in 2017, global average DSO fell by -1 day to 65 days in 2018, a sign of companies becoming more cautious in line with the global economic slowdown. As the world’s GDP growth decelerate this year to +2.9% y/y compared with +3.1% in 2018, Euler Hermes expects DSO to reach 64 days in 2019.

Nordic countries and North America successfully maintained their customers’ payment discipline. Despite usually having levels structurally lower than the rest of the world, in 2018, Canada and the U. S. still managed to reduce their DSO to 52 days and 51 days, respectively. This reflects cultural preferences but also shows that cash-rich companies in these countries can adapt rapidly to changing trends in global growth. 

In spite of weakening economic conditions, Norway (53 days), Sweden (57 days), the UK (52 days), Germany (54 days), Poland (59 days) and Belgium (59 days) all managed to lower their DSO, anticipating an upcoming deceleration of growth and adapting to rising difficulties in the car industry.

In line with the economic slowdown, we are seeing a trend of companies preemptively reduced payment delays, except for Mediterranean countries. Italy, France, Greece and Spain saw their average DSO lengthen by +5 days, +2 days, +2 days and +1 day, respectively, in 2018.

Recording the longest average payment term in the world at 92 days (27 days above the global average) once again is China, despite reducing its DSO by one day in 2018 vs. 2017. This means one in four companies is paid after four months! This trend reflects their important role as “invisible banks” at a domestic level and for major trade partners, reflecting its less mature and less open financial system.

Debt collection in China is highly complex. The court system is complex and suffers from a lack of transparency, delays and high costs. As enforcement results are poor, amicable or non-litigation collection is the preferred option. The insolvency framework is complex, with liquidation as the default procedure.


What does this means for Australian retail sector?

Retail has to be monitored carefully even though globally, it shows the lowest DSO level compared to all other sectors. Retail’s DSO plummeted by -5 days on average last year. As the sector’s business model is dramatically evolving, it has strongly tightened up its overdraft facilities. This tightening might go upstream to affect the main supplying sectors by possibly forcing them into granting higher Days Payable Outstanding (DPO) to retailers.   From a DSO perspective, this research points towards an interesting dynamic effecting the retail industry, one of the under-performing sectors in Australia.

Chris Doube, CEO of Euler Hermes Oceania explains: "The retail sector is one already under pressure in Australia. There is already pressure affecting more and more traditional "bricks and mortar" retail outlets from online competitors and changed purchasing trends. Should a reduction in DSO in Australia be sustained, to counter this, potential pressure could be placed on suppliers to the sector and increase their overall receivables asset by way of growing DPO, impacted by tighter lending requirements by their bankers as confidence in the sector diminishes".


Recent major insolvencies

In addition, our Q1 2019 major insolvencies report, which focused on companies with a turnover exceeding EUR50mn, indicates a high frequency of major insolvencies. Based on their financials, Euler Hermes calculates that these insolvent companies represented a combined turnover of EUR45.5bn (+4% compared to Q1 2019). This suggests a worsening severity of global insolvencies, which in turn, could have adverse effects of providers along the supply chains. Asia posted a significant increase (+20 cases), compared to -14 cases for Western Europe, -19 for Central and Eastern Europe.  In terms of sectors, we are seeing most insolvency cases in Construction (60), Retail (56) and Agrifood (32).

In our view, the upside trend in insolvencies will continue in 2019 (+6% y/y). However, this outlook will reflect a universal reason: the softening of the global economy to a too-low pace of growth. Euler Hermes expects economic growth to gradually become insufficient to sustain their production costs, (re)financing costs and structural challenges.  De facto, the lowering demand is increasing the vulnerability of companies with high-fixed costs and firms with larger inventories or working capital requirements issues. At the same time, the end of easy financing is increasing the vulnerability of debt intensive sectors and more globally of most indebted companies.



Euler Hermes remains cautious on sectors such as Retail, Construction and Services in Western Europe; Construction in Asia and Central & Eastern Europe and Retail in North America. These reflect a wide range of challenges (indebteness, input prices, overcapacity, digital disruption, cyclical exposure) and suggest more discrimination by risk managers.


  • Chris Doubé MICM
  • Australia and New Zealand CEO
  • Euler Hermes


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