How late payments affect Europe’s businesses

Europe has entered the second wave of the Covid-19 pandemic and the lockdowns will put many consumers and businesses in difficult financial positions. The consequences of a pandemic-related recession will intensify the problem of late payments among European companies.

Europe has entered the second wave of the Covid-19 pandemic, putting companies under additional financial pressure; 38% say late payments have a significant or high impact on the threat to their survival.

The economic downturn caused by the Covid-19 outbreak continues to have a dramatic impact on the European payment landscape. Our newly published European Payment Report 2020 outlines the consequences of late payments on companies’ abilities to continue operations and fund their growth ambitions.

The report reveals that the issue of late payments continues to pose a challenge for many European companies:

  1. 43% of companies say the risk of late or non-payments from their debtors is expected to increase in the next twelve months, compared with 16% in 2019;
  2. At the same time, growing macroeconomic uncertainty has caused 41% of companies to extend payment terms with their suppliers over the past year.

Late payments hinder growth

Being able to predict cash flows is crucial for businesses because financial stability is the foundation for growth.

Yet the report finds that overall, close to half (51%) say issues with late payments have a significant impact on their companies’ investment in strategic growth initiatives.

Respondents who say "issues with late payments from their customers" have significantly hindered their company's investment in strategic growth initiatives:

The graph show respondents who selected "Significantly" and "Very significantly" when asked to rank to what extend issues with late payments impact their growth initiatives.

Spanish businesses rank highest in Europe, where 6 in 10 (62%) state that late payments from customers have a high impact on their companies growth ambitions.

Looking by industry sector, at 52% within the Energy, Mining & Utilities companies ranks highest among the 11 industries surveyed, but late payments are holding back growth ambitions across industry sectors.

New jobs are at risk

When a company is paid late it stops them creating new jobs, pursuing innovation and expanding both their product range and geographical footprint.

More than half of the companies in the Tech, Media and Telecoms industry (53%) would hire more employees if they received payments faster from their debtors; the same goes for the Banking Financial Services & Insurance sector.

48% of SMEs and 52% of large corporations say late payments prevent them from recruiting.

The effects of late payments can also mean companies have to make staff redundant. Nearly a third of all respondents cited this is a significant or highly significant factor in reducing employee numbers.

Would faster payments from your debtors enable your company to increase its investment in the following areas? (yes)

The graph show all respondents who answered "yes" to the alternative in the question.

Increasing risk of liquidity squeeze

The Covid-19 pandemic continue to put pressure on companies in Europe as the second wave is forcing governments across the continent to introduce new lockdowns, which for many businesses mean reduced demand for their product and services.

To add to the already difficult conditions many of Europe’s businesses is operating in, for some, late payments can mean the difference between success or failure:

  1. 38% say late payments have a significant or high impact on the threat to their survival.
  2. More than half (51%) of companies we asked during the pandemic said liquidity squeeze has a high impact to their business, compared with 35% stating the same prior to the outbreak of the pandemic.

Respondents who say late payments have a "high impact" on their business in following areas:

Intrum did the survey field work between February-May 2020, which means we have been able to split the data between respondents pre and during the outbreak of Covid-19 pandemic. The graph show who ranked the alternative "high impact" as 4 and 5, on a scale from 1-5.

As much as 42% of Eastern European companies feel especially vulnerable to the effects of late payments. Southern European businesses are also under pressure. Over half (53%) say that debtors in financial difficulties is going to be one of their top three payment challenges over the next year, well above the already high European average of 38%.

Dealing with late payments from customers can be challenging

European businesses are experiencing a widening payment gap that continues to put pressure on them. Many companies across the continent fear undermining a business relationship and losing a contract if they do not deal with the payment gap.

  1. 69% accepted longer payment terms over the past year than they are comfortable with, for fear of damaging client relationships;
  2. 35% accepted longer payment terms to avoid bankruptcy; and,
  3. 500 respondents, 5% of the total, took no action against late payments.

This is where Intrum can help.

Each year, we help 80,000 clients to get paid when they experience difficulties in receiving payment for the products and services they have sold. We work on a daily basis to maintain the balance of the client-customer relationship so our clients can keep their customers.

As one of the EPR survey’s respondents says, “All business is based on trust. In the long-term, the only way to survive is to be ethical.”

 

About the survey:
The report is based on a survey that was conducted simultaneously in 29 European countries between 14th February and 14th May 2020. A total of 9,980 companies across 11 industries in Europe participated in the research.