UK firms are slashing costs, reducing debt and cutting headcount in a bid to survive as customers struggle to pay on time and in full according to new research by credit management group Intrum.

The company’s new European Payment Report focuses on the negative financial disruption caused by the Covid-19 pandemic. Research carried out before and after the crisis hit show the dramatic change in sentiment and confidence.

This is set to continue, with 46% of UK businesses predicting the risk from debtors will rise over the next 12 months, up from 14% in 2019. More than two-thirds (67%) rank pan-European recession among their top challenges.

Late payment is hindering strategic growth initiatives in over half (51%) of businesses and the payment gap is widening. The vast majority (80%) say they have accepted longer payment terms than they felt comfortable with over the last 12 months – nearly half did so to avoid bankruptcy.

Intrum UK MD Eddie Nott said “Late payment is threatening the survival of the UK’s businesses. Lengthening payment terms, default and rising arrears mean firms must dedicate more time and resources to getting paid. With the economy and customers under increased stress, it is little wonder companies are cutting costs, reducing headcount and shying away from taking on debt.”

“The difficulty of getting paid undermines trust between businesses, suppliers and partners, which will have a severe knock-on effect on business confidence and willingness to grow in the future.”

Getting paid on time would allow companies to expand products and investment, hire more employees and invest in digital strategies, respondents confirmed.

Businesses are largely in favour of initiatives to tackle poor payment behaviour. However, less than half of those surveyed have a code of ethics in place to encourage prompt payment in their own business.

Almost six in ten respondents say a Pan-European recession is a top three challenge when it comes to consumers paying on time over the next twelve months.

In the report, two measures among European companies clearly stand out. In order to protect their business in preparation for a recession and an economic upheaval, 38 per cent of respondents plan to cut costs, while 35 per cent will be more cautious about debt. 29 per cent say they are looking to cut down on recruitment to prepare for a recession, compared to 18 per cent in 2019.

Businesses are prioritising their payment practices to find solutions. Despite all good efforts being done, the payment gap is widening across Europe. The estimated time between the agreed payment term and the actual duration of pay is now 14 days compared to 6 days in 2019 in B2B corporate payments.

More than four in ten respondents (43 per cent) see risk from debtors increasing over the next twelve months and 19 per cent say it will increase significantly. Businesses are under increasing pressure by reduced liquidity, leaving many of them to search for alternative ways to free up cash.

Nearly half (46 per cent) say the widening gap is a real risk to the sustainable growth of their business. During the crisis, more than half (51 percent) said that late payments threatened a liquidity squeeze for their business, compared to 35 percent of those surveyed before the crisis

The widening payment gap is a growing concern for business as it pushes them into unnecessary difficult financial positions. Left unchallenged, it might take European businesses more time to rebound financially than European governments, says Ericson.

A recession will hit industries in different ways. The report highlights that businesses in the real estate and construction sector have been hit hardest by late payments. 41 per cent of these businesses say they now have accepted longer payments to avoid bankruptcy, whereas the European average is 35 per cent.

At the same time, as previously reported, companies within hospitality and leisure still struggle with different government restrictions across Europe. Within this sector, four in 10 respondents (42 per cent) say that a recession will have a severe impact on their businesses – the highest figure of the 11 industries Intrum surveyed.

The report can be downloaded here.