2
Brazil:
Payment experience
affected by the bleak
economic scenario
2
The
respondents
3
Payment
Practices and
Behaviour
PANORAMA
6
Payment
Experience
by Sector
JANUARY 2017
Coface Brazil corporate
payment survey
COFACE ECONOMIC PUBLICATIONS
C
oface conducts payment
studies for a number of
different economies,
including China, Morocco
and Germany. This survey marks the first such
edition for Brazil, with the
objectives being to better understand the
country’s corporate payment habits and
the health of its economy.
Brazilian companies are currently faced with
a challenging environment. GDP underwent
an accumulated contraction of 7.4% during
the two years of 2015-2016. Credit conditions deteriorated, against a backdrop of
more restrictive credit supply and a tighter
monetary cycle (which finally started to
marginally ease in October 2016).
Moreover the car-wash operation – the
biggest and longest corruption investigation ever carried out by the Federal
Police of Brazil - has played an important
role in the economic situation. It has
not only influenced the performance
of major conglomerates involved in the
scandals, but also impacted the activities
of companies that rely on sales to the
groups under investigation. 2017 has
just begun, but the year’s GDP forecast
is already lackluster. Although activity
is expected to leave recession, growth
is forecast to achieve a meager 0.4%.
The bleak economic environment has
overshadowed payment behaviour.
Our payment study revealed that, in
2015, 75% of the interviewed companies
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By Coface Group economists
received requests for payment extensions from their clients. In addition, the
majority (58%) observed an increase in
their delinquency rates in 2015, compared with 2014. The outcome for 2016
was more divided. The survey found that
payment experiences in 2016 had deteriorated in comparison to the previous
year for 46% of companies. The same
percentage reported that the situation
had remained stable in 2016, while a
minority of 8% have seen improvements.
PANORAMA
2
PAYMENT SURVEY
GROUP
Brazil: Payment experience
affected by the bleak
economic scenario
Patricia KRAUSE
Economist based
in Brazil
1
Graph n° 1
Company major sector of activity
3.2%
3.2%
2.4%
1.6%
1.6%
27%
Manufacturing industry
Services
5.6%
Retail
Agri-food
7.1%
Other industry
Chemical
Informatic & IT
7.9%
Extraction industry
Construction
Transport network
Hotels and restaurants
18.3%
8.7%
Financial and insurance
activities
14.3%
The Payment Survey, which comprised 22 questions,
was conducted throughout 2016, with a sample of 126
companies. Among the respondents (graph n°1), 27%
were from the manufacturing segment, 18.3% from the
services sector, 14.3% from retail, 8.7% from agro-food
and 7.1% from the chemicals sector. Together, these five
sectors accounted for 75.4% of the sample.
As regards the size of the companies questioned (graph
n°2), the largest representation in the survey was from
those with an annual turnover in excess of 175 million
Reals (approximately 52.5 million USD). Enterprises with
turnovers in the range of between 100 to 175 million
Reals accounted for 17% of companies, as did companies of less than 3 million Reals. In terms of number of
employees (graph n°3), the proportion of companies
in the ranges of up to 20 staff, between 21 and 100 and
between 101 and 500 were quite similar, at 26%, 22%
and 26% respectively.
Finally, as concerns markets, only 13% of the sample
companies are mainly focused on sales to other countries. This is in line with the nature of Brazil’s very closed
economy, with limited trade agreements and total
exports accounting for just 12.8% of GDP.
Source: Coface
Graph n° 2
Sales in revenues (year of 2015)
Graph n° 3
Number of employees (year of 2015)
28
30
30
25
25
20
20
17
17
5
0
26%
26%
22%
18%
15
15
10
THE RESPONDENTS
9
9
9
5
8%
10
6
5
L
L
d L
d L
d L
d L
d L
d L
ve BR
an R
an BR
an BR
an BR
an BR
an BR
an BR
th n B
5 n
3 n
bo
0 n
10 ion
20 lion
50 lion
A llion
n llio
n llio
ss illio
10 illio
l
n
e
e
l
l
l
n
e
n
i
i
i
i
i
i
n
e
e
L m
ee m
m
ee m
ee m
ee 5 m
tw 0 m
tw 5 m
5
3
tw 20
tw 50
tw 00
tw 17
17
Be 1
Be
Be
Be
Be 1
Be
Source: Coface
0
20
s
to e
p ye
U plo
em
s
s
d es
0 ees
nd ee
nd ee
an ye
00 y
1 a loy
1 a oy
21 plo
2, plo
10 pl
50 p
n
e
n
n m
v em
m
ee em
ee e
ee 0 e
bo
tw 00
A
tw 00
tw 00
Be 1
Be 5
Be 2,
Source: Coface
PANORAMA
PAYMENT SURVEY
3
GROUP
2
PAYMENT PRACTICES
AND BEHAVIOUR
Graph n° 5
Payment methods
The granting of terms of sale is a very commonplace practice in Brazil. Nearly all the companies
in the sample (97%) offer this possibility to their
clients. The main reason given (graph n°4) for
this (56%) was very high market competitiveness.
Client requirements (26%), tight customer liquidity
(13%) and convenience (10%) were also mentioned.
However, there were a surprisingly low number of
companies that cited customer liquidity issues. This
is due to the weak macroeconomic environment. The
economy has undergone a strong recession (GDP
is anticipated to have decreased by 7.4% in two
years until 2016) and tight credit conditions (bank
average spread for corporate non-earmarked bank
loans reached 16.9% a year in December 2016 – or
a hike of 1.9p.p. in 12 months).
Cheque payment
3%
Credit transfer
Banking billet
61%
36%
Source: Coface
The most frequently used method for account
payments (graph n°5) is the banking billet (61%),
followed by credit transfer (36%) and finally cheque
payments (3%) – which have lost popularity over the
years. Moreover, for 87% of respondents (graph n°6),
average credit sales stand at less than 90 days, with
the largest share being in the range of between 30
and 60 days (43%).
Graph n° 6
Average credit sales
50
43%
40
Companies are, of course, not immune to the crisis.
As an example, 75% of our sample mentioned that
they have been asked for extensions of payment
dates over the last year. In addition, the majority
(58%) observed an increase in their delinquency
rates in 2015, compared with 2014. The outcome
for 2016 was more divided. Payment experiences
were observed to be deteriorating, compared to
the previous year, by 46% of companies. The same
percentage argued that the indicator had remained
stable in 2016, while only a minority of 8% have
seen improvements.
30
22%
22%
20
10%
10
3%
0
ss
Le
s
an ay
th 0 d
3
n ys
ee da
tw 60
Be d
an
30
n ys
ee da
tw 90
Be d
an
60
n ys
ee da
tw 20
Be d 1
an
90
s
an ay
th d
e 20
r
1
o
M
Source: Coface
Graph n° 4
Main reason for offering credit sales
Graph n° 7
Average overdue days
79%
80
Clients
requirements
70
26%
60
50
Customer with
tight liquidity
13%
Market
competition
40
56%
30
20
15%
10
It’s convenient
4%
0
10%
ss
Le
Source: Coface
s
an ay
th 0 d
3
n ys
ee da
tw 60
e
B d
an
30
n ys
ee da
tw 90
e
B d
an
60
1%
n ys
ee da
tw 20
e
1
B d
an
90
2%
n ys
ee da
tw 50
e
1
B d
an
0
12
Source: Coface
PANORAMA
4
PAYMENT SURVEY
GROUP
Graph n° 8
Overdue in terms of total turnover
50
39%
40
It is also worthy of note (graph n°7) that the vast
majority (79%) claimed that, on average, overdues
did not exceed 30 days (graph n°8). Payment delays
of over 60 days accounted for only 7% in the total
sample. Finally, the ratio of total sales in overdues
as a percentage of total turnover gives a good
indication of companies’ exposure to risk. Only
13% of enterprises reported a ratio of over 5%. The
largest share (39%) replied that overdues account
for between 0.5% and 2% of their total turnover.
30
27%
21%
20
13%
10
0
w
lo
Be
The main reason (57%) given by clients (graph
n°9) when asking for payment extensions was that
they were experiencing financial difficulties. High
delinquency rates in their own client portfolios was
the second biggest reason, followed by customer
management problems.
5%
0.
n 2%
ee d
tw an
e
5
B 0.
n 5%
ee d
tw an
e
B 2%
ve
bo
A
5%
Source: Coface
Graph n° 9
Main reason for overdue account
We also questioned respondents on the main
fundamentals (economic or political) which were
impacting their clients’ performances. The six
possible answers (graph n°10) were: the economic
recession, political instability, external markets, high
interest rates, high unemployment and others. Of
these, the recession was cited by 81% of the sample,
followed by troubled political scenario (6%) and
“others” (also at 6%).
4%
2%
3%
21%
13%
High deliquency
in their client portifolio
Customers financial
difficulties
GDP has contracted for seven quarters in a row,
accumulating a drop of 4.4% in the four quarters
until 3Q2016. Moreover, preliminary figures suggest that the last quarter of 2016 was marked by a
further contraction. Coface only forecasts a slight
rebound in GDP for 2017, of 0.4%.
Customers management
problem
Commercial disputes
Others
Banking system/funds
transfer inefficiency
57%
Source: Coface
Graph n° 10
Brazil – GDP growth
GDP 12 months accumulated
GDP QoQ
0.5%
0.2
-0.8%
-0.4
-0.5
-0.9
-1.2
-1.5
-1.4%
-2.3
-0.8
-2.4%
-3.8%
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
-4.7%
-4.8%
1Q2016
2Q2016
-4.4%
3Q2016
Source: IBGE
PANORAMA
PAYMENT SURVEY
5
GROUP
Graph n° 11
Brazil - EPU political uncertainty index
500
450
417
400
350
300
250
200
170
150
100
50
0
7 07 07 08 08 08
9
9
9
12
12 r 13
13 r 14
13
15
15 r 16
16
16
14
14 r 15
10
10 r 11 g 11 c 11 r 12
10
06 r 0
c
r
r 0 g 0 c 0 pr ug ec
p
u De
p
ug Dec Ap
ug Dec Ap
ug Dec
ug Dec Ap Aug De Ap
ec Ap
A
ug Dec Ap
ug Dec Ap
u De
A
A
A
D
A
A
A
A
A
D
A
A
A
Source: Economic Policy Uncertainty
Political instability (graph n°11) is high - and is
unlikely to calm down in the short term. The car
wash operation, which has been undergoing investigation since March 2014, is at the heart of this
instability. The Federal Police of Brazil are investigating bribe scandals involving the state-owned
oil giant Petrobras, large economic conglomerates
and several politicians. Even though it was not the
official cause of ex-president Dilma Rousseff’s
impeachment in August 2016 (she was ousted for
breaking fiscal responsibility laws), the revelation
that politicians in her party (left-wing Labour party)
were under investigation played a decisive role. Vice
president Michel Temer (from the centrist PMDB
party) then took office, but the political atmosphere
failed to improve. This was not only associated with
Dilma´s remaining supporters, but also because
members of his party is also implicated in the car
wash operation. Mr. Temer has seen the already
high level of resentment against him swelling since
the beginning of December 2016, when a major
economic group signed a plea bargain agreement
with Brazilian prosecutors. In end January 2017, the
bargain was approved by the president of Brazil's
Supreme Court, Carmen Lucia Rocha. Despite her
decision to keep the testimony sealed, it has been
leaked to the press that Michel Temer´s name was
cited 43 times. Brazil’s political instability has clearly
halted its economic recovery.
The EPU political uncertainty index1 corroborates
this perception (see chart below - the higher, the
worse). In the period since car wash began, up
until December  2016, the index climbed by around
247 points.
As regards actions taken in cases of non-payment
(graph n° 12), the vast majority (78%) believe amicable negation to be the most effective tool, with
12% having recourse to protest (12%) and 7% to third
party intervention (7%).
In the World Bank 2017 Doing Business Index, Brazil
is ranked in 37th place out of 190 economies, in terms
of the ease of enforcing contracts. These take, on
average, 731 days and cost 20.7% of the value of a
claim. As a comparison, the average for the Latin
America region is 749 days, at a cost of 31.3%.
Graph n° 12
Most effective action in case of non-payment
80
78%
60
40
20
1/ The EPU index (Economic Policy Uncertainty) was developed
by Baker, Bloom and Davis. It is built on the basis of the number
of key-words, which define uncertainty, found in the press of the
country studied. It relates to three different fields, the economy,
politics and uncertainty, that are subdivided into different
categories, such as public spending, financial regulations and
interior security.
0
12%
le on
ab ti
ic tia
m o
A eg
n
t
es
ot
Pr
7%
rd on
hi ti
r t en
fo erv
t
t
es in
qu rty
Re pa
1%
n
io
at
itr
rb
A
1%
t
ur
Co
n re
sio u
vi ed
er roc
p
su p
1%
s
er
th
O
Source: Coface
PANORAMA
6
PAYMENT SURVEY
GROUP
Graph n° 13
Number of Chapter XI requests (number of requests accumulated during the year)
As regards insolvencies, the majority of surveyed
companies (58%) saw the number of clients that
filed for Chapter XI2 soar last year. This percentage
is supported by the strikingly negative figures for
insolvencies in Brazil overall. According to Serasa
(graph n° 13), the number of companies requesting
protection has been increasing since 2015, when a
hike of 55% was reported compared to 2014. A further
increase of 45% YoY (see chart) was observed in 2016.
2,000
Of those companies that reported an increase in
Chapter XI cases, 53% did not evidence changes
in the client´s behaviour prior to the request. Over
recent years, Chapter XI has become more and
more common in Brazil and is affecting companies
of varying sizes and sectors.
500
In theory, Chapter XI closes when a company meets
all the requirements laid down its recovery plan
- but in practice, few have been able to return to
health. Brazil’s legislation is very benevolent and
many companies have been under Chapter XI protection for over eight years. Grace periods can be
two years, with endless payment installments and
high discounts. According to the Doing Business
Index, the resolution of insolvencies in Brazil takes
2016
2015
2014
2013
2012
201 1
2010
1,500
1,863
1,287
1,000
0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Source: Serasa
an average of 4 years and costs 12% of the debtor´s
estate, with recovery rates averaging 15.8cents per
dollar. The process is inefficient, even when compared with Brazil’s emerging country neighbours.
The Latin America average stands at 2.4 years and
costs 4.5%, with a recovery rate of 31cents per dollar.
2/ Chapter XI was established in Brazil in 2005, under the new Law of Bankruptcies. It was designed as a measure to try to avoid
Chapter VII (bankruptcy) and is applied when a company loses its ability to pay its debts.
3
PAYMENT EXPERIENCE BY SECTOR
The bleak context of the Brazilian economy
has clearly taken a serious toll on various
sectors of activity. Coface’s sector risk
assessment does not currently classify any
of the country’s segments at low risk. The
paper-wood and pharmaceuticals segments
(both at medium risk) have shown higher
resilience than others. In contrast, metals,
energy, construction, automotive and agrofood are all classified at very high risk.
This section of the report examines the survey data by individual sectors. As there are
limited answers from certain sectors, the four
segments with smaller representativeness
(transport network, hotels and restaurants
and financial and insurance activities and
extraction industry) are considered as “other
industries” within this analysis.
SECTOR RISK ASSESSMENT
Sectors
Latin America
Brazil
Mexico
Agro-food
Automotive
Chemical
Construction
Energy
ICT*
Metals
Paper-wood
Pharmaceuticals
Retail
Textile-clothing
Transportation
*Information and communications
technologies
Low risk High risk
Medium risk Very high risk The risk has improved
The risk has deteriorated
Source: Coface
PANORAMA
PAYMENT SURVEY
GROUP
7
Graph n° 14
Average credit sales by sector
Average credit sale periods
(graph n°14) are divergent among
the sectors - although in most
segments, they do not exceed
60 days. Only the construction
and agri-food sectors granted
credit periods of over 120 days.
Interestingly, construction is the
only industry which did not report
sales periods of below 60 days.
Agri-food
Services
Retail
Other industries
Info. and
communication
technologies
Construction
Chemical
Manufacturing
industry
0%
20%
0 up to 30
40%
31 up to 60
60%
61 up to 90
80%
91 up to 120
100%
121 up to 150
Source: Coface
Graph n° 15
Share of companies experiencing
Info. and
communication
technologies
100
Construction
100
88.8
Chemical
Other industries
85.7
Manufacturing
industry
84.8
Services
73.9
54.5
Agri-food
36.8
Retail
0%
20%
40%
60%
80%
100%
Source: Coface
Graph n° 16
Distribution of average overdue days per sector (%)
Services
Retail
Other industries
Manufacturing
industry
Info. and
communication
technologies
Construction
Chemical
Agri-food
0%
20%
0 up to 30
91 up to 120
40%
31 up to 60
121 up to 150
60%
61 up to 90
More than 150
80%
100%
Source: Coface
In terms of payment behavior
by segment (graph n°15) delays
appear to be high in almost
all industries. Information &
communication technologies
and construction are the most
affected, as all of these companies
(100%) report payment issues.
Surprisingly, the least affected is
retail, with 36.8%. This is a somewhat unexpected outcome, due to
the recent poor performance of
retail (-6.5% in the year of 2016)
which is strongly influenced by
the weak income fundamentals
(the unemployment rate stood at
11.5% in 2016 – a rise of + 3.1 b.p. in
one year). However, it should be
noted that our limited database
may have influenced this result.
Average overdue days per sector
(graph n°16) are, for the most part,
up to 30 days. The only segments
which reported delays of over
121 days were construction and
agri-food. Both of these sectors
work with relatively longer terms
of payment, as seen in a previous
chart. Finally, it is also of interest
to note that none of the cases in
our sample exceeded 150 days.
Coface- January 2017 - Design and production: Éditions stratégiques / Photos: ©Fotolia/Snehit and DR.
RESERVATION
This document is a summary reflecting the opinions and views of participants as interpreted and noted by Coface on the date it was written and based on available information. It may be modified at any time. The
information, analyses and opinions contained in the document have been compiled on the basis of our understanding and interpretation of the discussions. However Coface does not, under any circumstances,
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elsewhere. Coface has no results-based obligation, but an obligation of means and assumes no responsibility for any losses incurred by the reader arising from use of the information, analyses and opinions contained
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