Intrum Justitia has released a European Payment Report which has highlighted the increasing pressure on SMEs to accept longer payment times. The report findings include:
- Contrary to political ambitions, a new European Payment Report from Intrum Justitia shows that small and medium-sized enterprises (SMEs) across Europe need to accept longer payment times from other, often larger, businesses.
- The report reveals a staggering increase in 2017. Now more than six out of ten (61 per cent) businesses complain about being asked to accept longer payment terms than they feel comfortable with, up from just over four out of ten last year.
- The problem seems to lead to a vicious circle, where businesses that receive late payments are in turn forced themselves to pay their sub-contractors late. Four out of ten (40 per cent) businesses admit they regularly pay late.
- This worrying development is causing businesses to demand tougher payment regulations. Four out of ten (38 per cent) businesses would welcome new legislation, while three out of ten (30 per cent) would prefer new voluntary-based codes of conduct to establish a culture of prompt payment.
“While I am pleased to note the businesses of Europe have a somewhat brighter outlook for the future in general, it is alarming that the payment culture is going in the wrong direction. The economic environment is being severely affected by some businesses pushing contractual terms for sub-suppliers towards 90 days or longer and deliberately paying later than agreed. We need new initiatives to establish a radically new culture of prompt payments,” says Mikael Ericson, CEO & President of Intrum Justitia.
In an effort to help SMEs, the EU adopted its Late Payment Directive for commercial transactions in 2011. Elżbieta Bieńkowska, the EU Commissioner responsible for Internal Market, Industry, Entrepreneurship and SMEs, noted in a revision of the directive last August that “There is still work to do before a consistent culture of prompt payment becomes a reality.”
Intrum Justitia’s annual European Payment Report shows that there is indeed more work to be done. For 2015 and 2016, close to a half of all businesses reported that they have been asked to accept longer payment terms than they feel comfortable with. If close to half wasn’t already a high number, the new report shows that it has jumped to 61 percent of the businesses in 2017.
The illustration is supported by reports that the average time for claims to be paid have gone in the wrong direction in 2017 compared to the year before. From a political perspective, it should be of particular concern to note that the average time for being paid by the public sector has increased from 36 to 41 days in just a year.
This year, businesses were also asked about their own routines of paying bills to other businesses. Notably, four out of ten (40 per cent) businesses admitted that they regularly pay late, which means that an estimated five percent or more of their bills are paid late. Only three out of ten (28 per cent) businesses said they paid all bills on time.
To get a sense of how the businesses would like to solve the problems of a deteriorating payment culture, they were also asked about which measures on a national level they would prefer. Four out of ten (38 per cent) would prefer new legislation to combat the problems of longer payment terms, while three out of ten (30 per cent) would prefer voluntary initiatives, such as the establishment of new codes of conduct.
“I am convinced we need to do much more to introduce a new perspective on businesses’ payment routines. Prompt payments should be on the sustainability agenda. That is the only way we can consistently change the behaviours. It would help our small and medium-sized businesses a lot – leading to job creation and growing societies, says Mikael Ericson CEO & President Intrum Justitia.