The dynamics of export financing are experiencing a significant shift, with payment terms emerging as a preferred choice for exporters after cash and bank loans, according to the latest Allianz Trade Global Surveys 2022 and 2023.
Rise of Payment Terms and Changing Financing Options:
Payment terms have reclaimed their position among the top three sources of export financing, with an evident increase compared to the previous year. In parallel, equity funding and state support have shared the same footing as payment terms in the past, highlighting the changing preferences among exporters (Figure 4). This shift is a response to the extended sales' payment terms (DSO) observed last year, indicating the growing significance of suppliers as the invisible bank. As liquidity access becomes more challenging and funding costs rise, exporters are leveraging extended payment terms to navigate financing hurdles. This trend is projected to continue in 2023, with a 5-day increase expected for both DSO and suppliers' payment terms (DPO).
Emerging Financing Options and Regional Variances:
Interestingly, new sources of financing are gaining traction, with Buy Now Pay Later (BNPL) emerging as the third choice in France and the UK. However, Italian and German respondents exhibit a more conservative approach, ranking BNPL as their least preferred funding option (Figure 5). This regional variance sheds light on the diverse strategies employed by exporters to secure financing based on local market dynamics and risk appetites.
Heightened Export Non-Payment Risk and Regional Outlook:
Export non-payment risk is anticipated to rise in 2023, particularly in the UK, Germany, France, and the US. Compared to the previous year, a higher percentage of respondents anticipate an increase in the length of export payment terms (42% vs. 31%), with the UK and the US reaching nearly 50%. The overall share of respondents expecting an uptick in export non-payment risk has also grown, reflecting a significant increase (+11pps to 40%). Notably, companies with disrupted supply chains since the Covid-19 pandemic display a higher level of pessimism, with approximately 70% expecting an increase in non-payment risk.
As we navigate the ever-changing global landscape, exporters are reevaluating their financing strategies. Payment terms have resurged as a valuable tool, reflecting the evolving role of suppliers as financing partners. The emergence of new financing options, such as BNPL, adds further diversity to the export financing landscape. However, exporters must remain vigilant as the risk of non-payment is projected to rise in several key markets. By staying informed, proactive, and adaptable, exporters can mitigate risks and seize opportunities in this dynamic environment.