According to research by Intrum Justitia, a Swedish credit management company, debt write-offs as a result of late payment rose 8%, which amounts to €8.7 billion in Belgium alone. One invoice in 40, on average, will never be paid.
At the same time, only 54% of all invoices are paid on time, which often results in a vicious circle – companies that have not been paid are in turn unable to pay their own creditors. Small businesses are particularly vulnerable because their cash flow is often tighter and because they lack the economic muscle to force better payment terms.
Three-quarters of businesses say late payments lose them money, mainly because they are forced to go into the red while awaiting payment. Half of companies said they had liquidity problems as a result, up from 40% in 2008.
The annual survey looked at 6,000 businesses across Europe:
• Small businesses write off 3% of their invoices due, compared to an average of 2.6%: they are harder hit than larger companies, who are more likely to be the culprits
• The amount of debt written off has jumped by €30 billion in the last 12 months alone
• The debt includes payments due not only from other businesses, but also from consumers and public authorities
• Only 10% of businesses expect an improvement in conditions in the coming year; 52% said they expected little help from banks following the recession
• The average delay in payment is now 18 days beyond the agreed term, compared to 19 days in 2009.
“With many European governments continuing to prop up their economies with cash injections, this €300 billion waste is truly worrying,” commented Lars Wollung, the CEO of Intrum Justitia. “In particular, it is extremely troubling to see how hard-hit the SME market has been by non-payment and the lack of confidence that conditions will improve over the coming months. With banks continuing to lend cautiously, good cash-flow management is vital to help ensure the very survival of many European small and medium-sized businesses.”
A majority of businesses said they would like to see the recent European Late Payment directive revised to cover consumer payments. At present, the directive only covers business-to-business debts and transactions between business and the public authorities. Under revised rules to come into effect this year, public bodies have to pay within 30 days or pay interest plus a 5% penalty. Businesses can also charge defaulters for any recovery costs incurred.
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