From payment behavior to cash piles to major insolvencies, companies have to face a shifting payment-risk landscape.
First, payment behaviors continue to be tense: 1 out of 4 companies worldwide are paid after 88 days. In China, for example, Days Sales Outstanding (DSO) has climbed to a nine-year high of 89 days in 2016. Upstream industrial sectors (Aeronautic, Machinery, Chemicals, Construction or Information and Communication Technology) are faced with the recovery curse: they tend to go for broke when growth looms ahead as they jeopardize the financing of their working capital to have a seat at the recovery table.
Second, non-financial corporations are sitting on a staggering 7 trillion USD of cash on their balance sheets, up 34% compared to 2010 and now representing 10% of global GDP, that is to say twice as much as before the crisis. This precautionary saving pile is either good news (because there is so much to invest) or bad news: there is not much to invest in to get returns. The biggest cash pile now is with Asian companies and the tech industry is now ahead of oil and gas and automotive when it comes to compulsive hoarding. Nobody wants to let the chips fall where they may when it comes to investing shareholders’ money.
Last, while the overall number of insolvencies is expected to stabilize over the next two years, major insolvencies (companies exceeding 50 million euros of turnover) went up by 68% and the cost by 34% to 19 billion euros of cumulative turnover disappearing into thin air. The United States is the most affected with 8 of the top 20 failures in the first quarter; and sector wise, services and retail are suffering the most due to rapid digitalization’s impact.