In a Sign of Continued Economic Health, Payment Terms Hit a 10-Year High!

In the Euler Hermes annual review and forecast of global average Days Sales Outstanding (DSO), payment terms from a sampling of 20 sectors in 36 countries has reached 66 days, its highest level since 2007. This trend is expected to continue into 2018 with an estimated increase by one-day to 67 days. With the continued improvement widespread across the globe, the electronics, machinery and construction industries showed the highest increase to an average above 85 days, while the other end of the spectrum is represented by quickly-paid household consumption industries. The country with the highest increase is China with a three-day rise to 92 days.

To support the continued DSO improvement argument, another Euler Hermes report shows that the velocity of global insolvencies are on the decline with a forecasted average drop of 1% in 2018. This is despite an increase in major insolvencies by sector being on the rise, particularly in service-based industries, retail, food, construction and metals.

Increases in DSO reflect relaxed payment standards between companies, and the current increases show that global health is improving as companies become more confident that they will be paid. However, if previous indicators are used to predict future economic events, it is worth acknowledging that the last time the DSO was this high was the year prior to the last economic downturn.