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Late payments to companies slow down job growth in Europe

More than every third SME say they could hire more employees if they were paid faster.

The figure appears in the recent European Payment Report 2016 from Intrum Justitia, a Credit Management Services group based in Stockholm, Sweden.

The report is based on a survey that was conducted simultaneously in 29 European countries between February and April 2016. In the report Intrum Justitia gathered data from 9,440 companies in Europe to gain insights in the payment behavior and financial health of European businesses.

Late payments, as well as long payment terms, cause trouble for enterprises all over Europe and the consequences can be counted in lost jobs and growth opportunities. 

Furthermore, one in four of Europe’s large companies say they could hire more employees if they were paid faster by their clients and customers. In fact, Intrum Justitia’s survey reveals that 7.7 million companies across Europe could make more hires if they were compensated within a shorter time period.

 “It is a market failure that costs job opportunities for millions of Europeans that big corporations deliberately force SMEs to finance their cash flow,“ said Mikael Ericsson, CEO & President of Intrum Justitia.

“As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations use their much smaller sub-suppliers to act financier of their own cash-management processes is not only wrong, it also creates an imbalance in society.”

Intrum Justitia’s survey revealed that 45 per cent of the SMEs say that they have accepted longer payment terms than they are comfortable with and 35 per cent claim that the request to do so came from a large multinational client.

Almost two thirds (63 %) claim that “intentional late payments” are among the main causes behind the delayed payments, suggesting that this problem could in large part be solved by new attitudes and guidelines.

 “To put pressure on smaller companies to accept longer payment terms while creating instability, insecurity and fewer job opportunities cannot be in any business leaders’ long-term interest,” continued Mikael Ericsson. 

Late payments and/or long payment terms hurt enterprises of all sizes but the SMEs are less protected. In fact, 28 per cent of the SMEs claim that they neither use bank guarantees, credit insurance, credit checks, pre-payment, debt collection, or factoring to protect them against bad payments. The corresponding figure for large companies is 9 per cent. 

The survey revealed also significant differences in paying culture by country. While Italy, Greece and Portugal are the three countries with the longest payment terms business-to-business, Italy, Portugal and Croatia are the three countries where enterprises report being paid the latest after bill due dates.

In Belgium 75 % of the businesses reported that intentional late payment is a main cause for delayed payment from their debtors, a much larger share than the European average of 63 %.  Their annual loss due to unpaid or late bills is estimated to 2.7 % of their revenue.

The EU’s Late Payment Directive 2011/7/ recommends payment periods for companies to be at most 60 days and for public authorities 30 days. But according to Intrum Justitia only a minority of companies is aware of the existence of the directive.

The European Commission has just recently decided not to review the existing directive, mainly due to the fact that the implementation in many member states took longer than anticipated.  “Europe’s business society must take action voluntary to address this challenge,” says CEO Mikael Ericsson.

The Brussels Times