Chemicals industry and trade receivables risk

In the face of the outlook of a global economic downturn, chemicals businesses’ ability to improve the cash-conversion cycle has become more important than ever.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

image - chemical refinery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Globally, the chemicals industry seems to be performing well: generally robust business financials, good payment records, and low insolvency rates compared to other industries. There is high demand for chemicals from key end-markets, including automotive, construction, and electronics.

However, the chemicals industry is characterised by intricate supply chains that are vulnerable to external risk factors. This in turn exposes international businesses like AkzoNobel to major challenges and financial risks.

  • The chemicals industry is cyclical, highly dependent on changes in the global economy, which appears to have peaked at 3.0% in 2018. The loss of global GDP growth momentum is set to persist, together with the looming threat of escalating trade disputes amid geopolitical turbulence.
  • One side effect of the rising uncertainty surrounding trade and monetary policy is the increase in commodity price volatility, including oil and gas – the primary commodities the chemicals industry relies on.
  • International competition is intensifying, especially from China and the U.S. The shale gas boom and the surge of natural gas liquids supply have turned the U.S. chemicals sector into one of the lowest-cost producers and put global sales prices under pressure.

There are certain measures you can take to mitigate these risks: diversifying customers geographically, avoiding significant concentration of credit risk, or dealing only with financial counterparties that have sufficiently high credit ratings. To prevent credit risk from trade receivables, ageing analysis is a good first step. However, once the risk materialises, concrete actions need to be taken immediately to mitigate the impact.

The benefit of having international debt collection agencies like Atradius Collections recover your past due trade receivables is twofold. First, the agency provides you with global recovery capacity and a cushion against the ripple effect of a global economic downturn. Second, recoveries are an increasingly important source of cash – the windfall could increase your balance sheet's flexibility and provide you with re-investment opportunities. This is an effective curative measure to be implemented next to your existing preventive measures, ensuring that your business is resistant to risk no matter how the global economy unfolds.

In the following sections, we are going to provide country-specific overviews of the chemicals industry together with methods you can use to mitigate risks in the trade receivables area.

1. Brazil

Overview

 

 

 

 

 

 

 

 

 

 

 

chemicals industry overview Brazil

 

 

 

 

 

 

 

 

 

 

 

In line with the recovery of the Brazilian economy (GDP is forecast to increase 3.2%), the chemicals sector is expected to grow by more than 3% this year.

Most Brazilian chemicals businesses are highly leveraged, which is also the results of previous expansion activities before the recession started in late 2014.

Payment practice

Payments usually take up to 120 days in the chemicals sector, with payment behaviour influenced by a business' spending capacity and behaviour.

The current economic rebound should help avoid an increase in late payment cases, and business insolvencies in the chemicals sector are expected to decrease this year.

Risk

The level of competition in the chemicals sector is high and a concentration process is ongoing – in particular among medium-sized and large players.

Most raw materials have to be imported, and production costs are therefore exposed to foreign exchange rate volatility and the looming threat of trade restrictions.

Trade receivables risk mitigation

 

 

 

 

 

 

 

 

 

 

Atradius Collections Complexity - Brazil

 

 

 

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process.

We contact debtors verbally and in writing with a proactive and objective approach. Our team of collection specialists carry out the collection process in-house, adhering to federal and state laws and focusing on maintaining the trading relationships between you and your debtors.

Legal collections

If third-party collections do not yield results, we would consider this approach after consulting with you. This entails enforced legal rights, including rules of evidence and rules of Civil Procedure (filing complaints, answers, serving documents on the opposition, and the laws governing that process).

Each state and municipality has its own judicial system where magistrates deal with commercial and other civil cases in the first instance. Decisions from state and municipal courts may be appealed through a federal court.

2. China

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview China

 

 

 

 

 

 

 

 

 

The Chinese chemicals industry has entered a phase of lower but still solid growth, following a slowdown in GDP growth. However, despite the slowdown, both Chinese GDP expansion and chemicals demand growth rates remain above the global average.

The Chinese government is actively encouraging joint ventures between foreign companies and state-owned enterprises. The benefits for foreign companies investing in China include a growing domestic market, and low construction and labour costs when building greenfield projects.

In the long term, China’s growing industrialisation and urbanisation will provide further growth opportunities for the chemicals industry.

Payment practice

On average, payments in the Chinese chemicals sector take around 60-90 days. The level of payment delays and insolvencies in the sector is average.

No major increase of business failures is expected this year, as demand for chemical products is relatively stable.

Risk

Many businesses have faced oversupplies because of the investment-led growth model that has resulted in excessive spending on new factories in the past. Overcapacity issues have resulted in deteriorating business profitability in some segments.

Competition in the Chinese chemicals sector is high, as overcapacities have driven businesses to reduce output and cut prices in order to gain a competitive edge.

Trade receivables risk mitigation

 

 

 

 

 

 

 

 

 

Atradius Collections Complexity - China

 

 

 

 

 

 

 

 

 

Third-party collections

China has had a vivid history of trade receivables collection. It was prohibited by the Chinese government in the late 19th century and is still prohibited by law today. Therefore, trade receivables collection officially does not exist, but there are companies who provide collection services through specialised legal firms that are authorised to collect Chinese trade receivables. Nowadays, businesses in China have shown more interest in outsourcing their past due trade receivables to collection agencies and law offices.

For Atradius Collections, we collaborate with local law firms to provide third-party and legal collection services in China. Our team have experienced collectors with legal backgrounds, which are essential for collecting trade receivables in China.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you. There is no need to give a warning prior to starting a lawsuit. When a case is sent to court, there may be a pre-court procedure, which can be skipped before normal proceedings begin.

3. France

Overview

 

 

 

 

 

 

 

 

chemicals industry overview France

 

 

 

 

 

 

 

 

The French chemicals sector has proved to be resilient in recent years, despite subdued growth rates of the French economy.

Production growth is expected this year, supported by increased investments, low prices of oil, natural gas, and electricity, a benign EUR/USD exchange rate, and low interest rates. Specialty chemicals, in particular, are expected to perform well due to increased demand for paints, essential oils, and lubricants.

Moreover, French chemicals production is concentrated around a few large international players who have wide access to financing and diversified markets. The danger of losing competitiveness has clearly led to some strategic restructuring measures by French chemicals businesses, such as focusing on core business activities and diversification of activities into specific segments with higher margins.

Payment practice

The volume of protracted payments and non-payment is expected to remain low.

The industry is characterised by a low level of insolvencies. It is expected that the number of insolvencies will decrease further this year. However, given the value chain structure of the sector, insolvency of a major player would have a severe impact on suppliers.

Risk

The labour costs are high and the regulation for the chemicals industry is stricter in France than in most other countries. As France’s GDP growth stagnates at 1.5%, the corporate outlook is increasingly strained by supply constraints in terms of labour supply and production capacity.

Meanwhile, the French construction sector, one of the major chemicals buyer industries, still shows no comprehensive rebound.

The weaker external environment and trade policy risks, especially for the automobile sector, next to domestic protests, also contribute to deteriorating business sentiment.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - France

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting the debtors both verbally and in writing whilst adhering to state laws. When there is a case of dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon).

All investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

The first step is sending a letter informing the debtor of our decision to start legal proceedings. Our legal team will decide the best procedure to be undertaken, depending on the documents that are available in the case and the position of the debtor (e.g. acknowledgement of debt, dispute, litigation).

4. Germany

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview Germany

 

 

 

 

 

 

 

 

 

The German chemicals industry is the largest in Europe and the fourth largest in the world, with about 2,000 companies acting as suppliers to almost all industrial sectors.

The German chemicals association VCI expects production to increase and turnover to decline this year as producer prices continue to decrease. Domestic demand is expected to remain subdued due to modest industrial growth, while exports are expected to pick up.

Despite the rather subdued performance in recent years, most German chemicals companies remain generally satisfied with their business situation. Given the persistently low oil price, most companies still do good business, even with decreasing sales.

Generally, German chemicals businesses have robust equity, solvency and liquidity. Profit margins are expected to remain stable.

Payment practice

The German chemicals sector’s payment behaviour has always been better than average with no notable payment delays. In our experience, payments take, on average, 45 days – even fewer for domestic payments, as most chemicals products are exported to destinations with longer payment terms than the domestic market. We have seen no change in payment behaviour or increase in notifications of non-payment in the last six months, and this trend is expected to continue.

Risk

Germany is vulnerable to the economic slowdown in many major emerging markets like China, Brazil, and Russia, with the last two's economies even contracted.

Increased international competition forces many chemicals businesses to immediately pass on lower commodity prices to customers.

Business investment growth is forecast to slow down to 2.8% from 3.1% in 2018 due to global trade uncertainty and labour supply constraints weigh on the construction sector. This feeds into the expected lacklustre GDP growth of 1.3% this year.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Germany

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting the debtors both verbally and in writing whilst adhering to federal and state laws. When there is a dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms previously agreed upon).

All investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you. Entering into legal proceedings is possible without a prior warning to the debtor. However, all courts are trying to mediate between creditors and debtors, and, in order to shorten the amicable phase of the legal proceedings, they may ask for proof that all pre-court efforts did not reach a conclusion and will ask to see all prior correspondence in order to reach a fast and final judgment.

5. India

Overview

 

 

 

 

 

 

 

 

chemicals industry overview India

 

 

 

 

 

 

 

 

The Indian chemicals industry is forecast to record value-added growth this year. Specialty chemicals remains a fast growing segment, on the back of favourable oil prices and strong domestic and export demand.

Payment practice

On average, payment in the Indian chemicals sector varies between 60 days and 180 days, depending on the position in the value chain and businesses bargaining power, credit policy, and geographical position.

For example, chemicals manufacturers purchasing raw materials have shorter credit terms.

The level of payment delays and insolvencies is rather low in the chemicals sector, and no major increase in business failures is expected this year.

Risk

There are stiff competition and price pressures in a very strictly regulated market environment.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - India

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process.

We have a local team in India that follow proven principles of negotiations. By keeping in close contact with the debtors, we are able to evaluate genuine cash flow problems and stalling excuses for non-payment. Field visits and face-to-face meetings with the debtors are an integral part of our collection initiatives.

Legal collections

Whilst Atradius Collections maintains a high success rate with third-party collections, if necessary and with your approval, we have the ability to initiate legal action and arrive at a successful conclusion via court.

In India, legal proceedings are generally protracted in nature and can be initiated immediately after the third-party collections fail. There is a need to issue a prior notice before initiating a recovery under section 138 suit. new law of the National Company Law Tribunal (NCLT), helping set winding-up proceedings on a fast track.

6. Italy

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview Italy

 

 

 

 

 

 

 

 

 

Italian chemicals production increased 3.5% to EUR 55 billion. Exports, which accounted for 55% of total revenues grew 9%. Domestic demand increased and expanded across all customer segments, except for construction and consumer durables. The specialties segment grew 7.8%.

The outlook for 2019 remains positive for the time being, despite a slowdown in early 2018 (in Q1 of 2018, Italian chemicals production grew just 1.5%, below the European average of 1.9% and Italian manufacturing average growth of 4.6%). This slowdown was mainly due to increased domestic and international political uncertainty, impeding higher chemicals purchases.

Payment practice

On average, payments in the Italian chemicals sector take around 60 days. Payment experience is good, and the level of protracted payments has been low over the past couple of years. The level of payment delays and insolvencies is low, and this should remain generally unchanged this year.

Risk

Italy entered a recession in H2 of 2018, driven by negative domestic demand. Industrial production contracted 1.1% q-o-q in Q4 and the composite PMI is worsening in negative territory.

The fragile economic outlook continues to be clouded by political volatility, undermining confidence in public finances and the banking sector recovery.

As a result, credit conditions have been worsening: since the start of 2018, the three-month moving average of new credit to non-financial corporations has been decreasing and the ECB’s Q4 bank lending survey points to further tightening in 2019.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Italy

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting the debtors both verbally and in writing whilst adhering to federal and state laws. When there is a case of dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon).

All investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

We have a professional network of experienced law firms in Italy to perform judicial credit collection activities. This network covers the whole country and is able to manage legal action in all court districts.

Our lawyer will first send a warning letter (‘Lettera Monitoria’) to the debtor via registered post, so there is proof of delivery, or via certified email address (pec). If the debtor does not pay or reply, thereby disputing the debt, the judicial phase will start with the injunction decree (‘Decreto ingiuntivo’).

7. The Netherlands

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview Netherlands

 

 

 

 

 

 

 

 

 

Chemicals is one of the leading industries in the Netherlands. The business conditions are very favourable for this sector, e.g. important raw materials are available or can be easily imported, an extensive transport network provides access to the European market.

Furthermore, the Netherlands is among the leading countries in terms of chemicals research and development. The Dutch chemicals industry spends about 1.25% of its turnover on in-house research and development.

The outlook for this year remains positive, as businesses’ confidence in the industry has improved and they are expected to benefit from some rebound of demand domestically, in Europe, and overseas markets, coupled with a weaker EUR exchange rate and lower energy prices. Businesses’ margins are expected to pick up again.

Payment practice

The level of payment delays and insolvencies has been low in 2018, and this is expected to remain the case this year.

Businesses in the sector generally show average levels of indebtedness, and banks are willing to provide loans.

Risk

Competition, especially from China and the Middle East, has increased in recent years.

Heavily oil-based segments have felt a competitive disadvantage to their U.S. competitors, who benefit from lower production costs due to cheaper shale gas and oil. The currently low oil prices provide some relief for Dutch chemicals firms. However, if oil prices rise in the future, competitive pressure from the Middle East, China and the U.S. will grow further.

While domestic demand remains robust, economic slowdowns in France and Germany (which together account for more than 30% of all Dutch exports) and global trade uncertainty are weighing on exports.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Netherlands

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to applicable laws.

When there is a case of dispute, we would call on our experienced team of Dutch legal collectors, who each has a master’s degree in law, to provide assistance. They mainly take a consultative role but may take over the case if the dispute is related to legal aspects.

In the event that mediation by legal collectors might not lead to an agreement and legal proceedings are indicated, the file will always be dealt with by our Dutch legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you. All rules concerning commercial private law are codified in the Dutch Civil Code (‘Burgerlijk Wetboek’), whereas rules concerning procedures, courts, competencies and the likes are dealt with in the Civil Process Code (‘Wetboek van Burgerlijke Rechtsvordering’).

Entering into legal proceedings is possible without a prior formal warning to the debtor. However, all courts demand evidence that there have been pre-court efforts to try to get payments and/or to come to an amicable settlement. During these pre-court efforts, an announcement to start legal proceedings is common and should be done.

8. Poland

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview Poland

 

 

 

 

 

 

 

 

 

Chemicals production growth is expected this year, although at a slow pace, supported by GDP expansion forecast of more than 4%.

Many players have strong market positions, domestically as well as in Central and Eastern Europe. This enables them to focus on innovation (more than 20% of the existing patents in Poland stem from the chemicals sector) or to expand into new market segments with mergers and acquisitions.

Chemicals businesses’ profit margins are expected to remain stable this year. Gearing in the Polish chemicals sector is average, and many companies use investment credits in order to finance their investment projects for innovations.

Polish banks are generally willing to provide loans to the industry. The Polish benchmark interest rate has remained low at 1.5% since March 2015, and the subsequent low interest rates for credit has spurred chemicals businesses to use bank loans to finance their investments.

Payment practice

On average, payments in the Polish chemicals sector take 30 to 60 days, but can take 180 to 240 days. Payment behaviour has been good over the past two years, and the number of non-payments and insolvencies has been low.

Given the solid performance of the chemicals sector, no major increase in business failures is expected this year.

Risk

Loss of growth momentum due to lower global trade and risk appetite for EME assets – a situation worsened by unorthodox policy-making.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Poland

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on the relationship between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to federal and state laws. When there is a case of dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms that have been agreed upon).

All investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

It is obligatory to send a written request for payment to the debtor before starting any legal action in court.

When both parties in dispute are conducting business activities, the commercial courts review the case. This kind of legal proceedings was established in 2011 to speed up the court’s decision.

Some simplified legal proceedings can also be run by the E-Court in Lublin. Poland was a signatory to the European Council Regulation (EC) 805/2004, which allows creditors to enforce European Enforcement Order (EEO). We provide a service for obtaining an EEO in your location to be enforced in the debtor’s country.

9. Spain

Overview

Spanish chemicals production growth is expected to increase about 2.5% this year. Profit margins remained stable over the past 12 months, mainly due to less volatility in oil prices.

In general, access to bank financing for chemicals businesses has improved in recent years, for both short-term financing (working capital management) and long-term facilities (i.e. capital expenditure financing). Gearing of businesses in this sector is generally low.

Payment practice

Payments in the Spanish chemicals sector take 60 days on average. The number of payment delays and insolvencies has been very low over the last couple of years, and this is expected to remain unchanged this year, due to fairly stable commodity prices and the positive growth outlook of the Spanish economy.

Risk

Economic growth is expected to continue strong, but not as strong as in previous years. This decline has resulted in a slow recovery from Spain’s high level of insolvencies in 2018 (-3%).

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Spain

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process. We focus on preserving the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting the debtors both by phone and in writing. When there is a dispute, we aim to reach an amicable solution between you and the debtor. All contractual documents are analysed (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as standard terms previously agreed upon). The investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you. Entering into legal proceedings is possible without prior warning to the debtor. Anyway, it will be advisable to exhaust the amicable options before starting legal action, considering its expensive cost, especially when there is a dispute.

In cases where the debtor is traceable but our amicable actions are unsuccessful, our lawyers’ network will advance with pre-legal action, paying a visit to the debtor to make use of all collection chances. If the lawyer´s actions are favourable, a fee will be chargeable to you according to the final collected amount. If the actions taken by the lawyer are unsuccessful, we will assess if further legal action is viable or not.

10. Sweden

Overview

The Swedish chemicals industry is a strong and expanding trade sector, accounting for around 34,000 full-time jobs and consisting of about 1,000 companies. The ten largest businesses and corporates account for more than 50% of employees. Chemicals accounted for 16% of total Swedish exports in 2018 (about EUR 12 billion), and as one of the basic industries, it provides an important foundation for other industries and industrial development.

This year is expected to be another satisfying year for the industry, with a value-added sector growth rate of 0.4%. Swedish chemicals businesses will benefit from another year of low oil prices, as many companies rely on oil-derived raw materials. High demand from Europe and the U.S. is expected to partly compensate for the decline in other markets.

Compared to other Swedish business sectors, the general equity, solvency, and liquidity strengths of chemicals companies continue to remain above average. Profit margins are good and expected to remain stable in the coming months, while banks are generally willing to provide loans to the industry.

Payment practice

Payments take between 30 days and 60 days on average. Payment behaviour within the sector is generally good, with a low level of protracted payments.

Risk

While overseas demand has been the main driver of the Swedish chemical output in the past few years, Swedish chemicals companies are now increasingly facing new competition from the Middle East and Asia.

The slowdown in emerging economies like China and Brazil could reduce growth in key chemicals customer sectors, impacting some major Swedish chemicals businesses.

The insolvency level in the chemicals industry is low. However, a slight increase in insolvencies for all Swedish businesses is expected this year, largely due to upward carry-over effects from large increases in 2018.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - Sweden

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help by initiating a professional collection process in Sweden. We focus on the relationships between you and your debtors at all times.

Our team of collection specialists carry out the collection process in-house, contacting the debtors both verbally and in writing whilst adhering to federal and state laws.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

Entering into legal proceedings is only possible with a four-day notice period to the debtor along with required documents. The debt needs to be proven to be enforceable.

If the debt is undisputed, a bailiff will issue a payment order, which equals a judgment.

If the debtor disputes the debt, the file is assigned for trial handling, regardless of the reason or the seriousness of the dispute.

If a judgment is obtained and the debtor does not pay accordingly, the file will be handed over to the bailiff’s court for execution. Wage retention is the most effective measure used by the enforcement office. This requires the debtor’s employer to withhold a certain portion of the debtor’s salary so that it can be sent to the bailiff, who can then advise the creditors on the paid amount.

11. United Kingdom

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview UK

 

 

 

 

 

 

 

 

 

The British chemicals industry adds about GBP 18 billion of value to the UK economy every year, and it is the largest exporter of manufactured goods. The chemicals segment accounts for 6.8% of UK gross value added manufacturing. Chemicals and chemical products account for about 4.5% of exported goods. Compared to other sectors, business investment is high, at about GBP 4.3 billion in 2017.

The majority of chemicals businesses are mature with a stable customer base, as high entry barriers protect the industries (regulatory requirements and required high capital expenditure).

A large number of chemicals businesses rely on asset-based finance for financing. In most cases, profit levels are sufficient to cover the interest. Bank financing facilities are adequate, and business refinancing does not appear to be a problem.

Payment practice

On average, payments in the British chemicals sector take between 60 days and 90 days. Payment experience has been very good over the past couple of years, and the level of protracted payments is low. The number of non-payment and insolvency cases was low in recent years, and this trend should largely remain unchanged this year.

Risk

The potential repercussions of Brexit on the domestic economy pose a downside risk for businesses profitability and payment behaviour in the mid-term.

Chemicals is part of a tightly integrated EU supply chain that relies on the friction-free transfer of ingredients and finished products. At the same time, the EU accounts for 60% of British chemicals exports.

Brexit-related uncertainty is clearly beginning to bite as reflected by four consecutive quarters of contractions in all business investment in 2018. The sharp loss of momentum is expected to continue this year.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - UK

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help collect debts without recourse to legal action by telephone and letters.

We always try to obtain payment of debts in full, but we will negotiate to agree on a payment plan or a settlement figure.

In order to support this process in the UK, we must issue a letter before claim, which is the start of the legal process. This is not used in all cases – only in those where the collector considers that the debtor has the ability to pay and needs some strong evidence of our intentions.

In England and Wales, we can issue a copy of the proceedings that will be sent to court in the event that the debtor fails to make payment.

When there is a dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as standard terms previously agreed upon). All investigations are completed with the assistance and agreement of our legal team.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

Within the UK, there are several different and separate legal jurisdictions: England and Wales, Scotland and Northern Ireland. While in general, creditors can take the same actions in each jurisdiction, there are differences in solicitors, timescales, and costs.

Generally speaking, the first stage of legal action in every jurisdiction is the issuing of a letter before claim (LBC). This is a letter sent to the debtor from the solicitor, informing them that should they not make payment in full, legal proceedings will be commenced.

If the LBC is not successful, there are three main options: county court judgement, full court proceedings – generally a trial, and making a company insolvent, often called winding up. However, in the last option, there is no guarantee that making a company insolvent will recoup any monies.

There are two steps to successfully recover monies in the UK by taking legal action. The first is obtaining a judgment and the second is the enforcing of that judgment.

12. United States

Overview

 

 

 

 

 

 

 

 

 

chemicals industry overview US

 

 

 

 

 

 

 

 

 

Chemical production volumes continued to increase with robust growth expected in 2019 (3.9%), according to the American Chemistry Council. The upturn is sustained by robust demand from the automotive and construction sectors, capital investment, and the cost advantage of shale gas.

Chemical producers are clearly looking to take further advantage of continued low natural gas prices in the U.S., which is enabling the significant expansion of methane-based projects.

The comprehensive tax reform will offer chemicals corporates based in the U.S. a lower corporate tax rate and allows them to repatriate some of the cash they hold overseas. An influx of repatriated cash could be used to repay company debt, fuel new business development activities or reinvest in U.S.-based projects.

The number of insolvencies is low compared to other sectors and is expected to remain so this year, consistent with improving demand for chemicals.

Payment practice

Profit margins of U.S. chemicals businesses are generally stable, and the amount of protracted payments is low. On average, payments in the industry take between 30 and 90 days.

Risk

Currently, it seems that the potential downside risks related to President Trump’s economic policies outweigh the business opportunities. Should international trade disputes escalate, there is the immediate risk that retaliatory measures by trade partners would hit the U.S. chemicals industry, given its substantial trade surplus (Mexico alone accounts for more than half of the U.S.’s chemicals trade surplus). At the same time, potential taxes on chemicals-related imports could find U.S. chemicals businesses paying more for feedstocks and would negatively impact supply chains.

As the sector is highly fragmented and dependent on the broader economy and input costs, trends and end-markets need to be scrutinised.

Close monitoring is recommended when trading with customers in countries where the local currency has significantly devalued against the USD.

While the Fed’s change in policy offers relief for U.S. firms, risks to the business outlook are still high. Trade policy uncertainty and general policy uncertainty, especially under the split Congress, could weigh on investment. Furthermore, with the Fed’s policy rate already tighter at 2.25%, high levels of corporate debt, and the fading out of fiscal stimulus, the operating environment for corporates is expected to become more challenging.

Trade receivables risk mitigation

 

 

 

 

 

 

 

Atradius Collections Complexity - US

 

 

 

 

 

 

 

Third-party collections

Should your debtors fail to meet their payment obligations, Atradius Collections can help initiate a professional collection process, focusing on the relationships between you and your debtors at all times.

We pursue debtors within the bounds of federal and state laws and liaise with you and the relationship management team to ensure that we serve you efficiently and effectively.

When there is a dispute, we aim to reach an amicable solution between you and the debtor. We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as standard terms previously agreed upon).

All investigations are completed with the assistance and agreement of our legal team. Our collectors work to ensure that, if the initial collection phase is not productive, the file is adequately documented to fully utilise the second tier of our collection process, the legal phase.

Legal collections

If third-party collections do not yield results, we would consider taking legal action after consulting with you.

The judicial system in the U.S. is unique, as it is made up of two different court systems: the federal court system and the state court systems. While each court system is responsible for hearing certain types of cases, neither is completely independent of the other and the systems often interact. Solving legal disputes and maintaining legal rights are key goals of both systems.

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Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation, advice or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.