Key Insights:
In 2024, the average global payment term increased to 62 days, two days more than in 2023.
In Europe, the average payment term now stands at 58 days, also up by 2 days.
The global working capital requirement (WCR) rose to 78 days, the highest level since 2008.
European companies may require an additional €8.5 billion in working capital as a result of the announced U.S. tariffs.
Payment terms increasing globally
According to the latest Days Sales Outstanding (DSO) report from Allianz Trade, companies worldwide now wait an average of 62 days for invoice payments, two days longer than in 2023. In Europe, the average stands at 58 days, also up by two days.
“DSO is a key indicator of a company’s financial health,” says Johan Geeroms, Director of Risk Underwriting Benelux at Allianz Trade. “The increase signals growing liquidity pressures. Companies are finding it harder to meet their obligations, which limits their investment capacity and increases dependence on banks. At the same time, banks are becoming more cautious in extending credit due to this deteriorating indicator.”
Geeroms adds that companies are increasingly acting as informal lenders to each other by delaying payments. “Essentially, you are using your customer as a bank. This creates tension in the supply chain and raises the risk of defaults and bankruptcies.”
€11 billion in additional business credit extended
In practice, extending payment terms and building up inventories functions as intercompany lending. Between Q4 2024 and Q1 2025, European companies collectively provided €11 billion in additional credit to their business partners—a figure comparable to the monthly growth of bank credit over the same period, according to Maxime Lemerle, Lead Analyst, Insolvency Research at Allianz Trade.
Global working capital requirement on the rise
The global working capital requirement (WCR) increased by two days in 2024 to an average of 78 days, the highest level since the 2008 financial crisis. In Western Europe, WCR rose by four days to 67 days—the third consecutive annual increase. In contrast, WCR in the U.S. declined by three days.
European companies, in particular, are facing higher inventories and downward pressure on sales due to weakening demand. This increases their credit risk and amplifies the need for external financing.
Future increase in working capital requirement a real risk
Trade policy uncertainty, particularly the announced tariffs by Donald Trump, adds an additional risk. According to Ana Boata, Head of Macroeconomic Research at Allianz Trade, WCR could rise sharply under an adverse scenario.
“If all announced tariffs are implemented, economic growth would fall by one percentage point and financing costs for the trade balance would increase. European companies would then need to finance an additional €8.5 billion, while U.S. companies would require $15.5 billion. With a further interest rate increase of +1 percentage point, these amounts could rise to €14 billion in Europe and $26 billion in the U.S.”
Conclusion
The extension of payment terms and the rising working capital requirement are clear indicators of deteriorating financial conditions for companies worldwide. European businesses appear particularly vulnerable, due to higher inventories and increased reliance on external financing. Further economic and political uncertainty could exacerbate this situation.
Source: allianz-trade.com
Photo: Shutterstock
