B2B Payments

Are Late Payments Western Europe’s New Normal?

Late payments are costly. Extending payments beyond invoice terms increases both the financing and administrative costs associated with trade debt. Finding a way to manage these rising costs is the top challenge to profitability for Western Europe’s businesses over the next year. About one-quarter of respondents consider cost-containment their No. 1 issue.

According to the report, titled “Atradius Payment Practices Barometer,” invoices across Western Europe are paid 21 days after the due date; an increase of one day over the average payment delay in 2013. This delay means businesses, on average, are waiting 56 days after invoicing for domestic payments and 52 days post-invoice for foreign payments. Geography does make a difference. There is a clear divide between Europe’s Northern and Southern nations. Italy takes the longest to settle payments—32 days, while Sweden and Denmark settle the fastest at nine and 12 days past due, respectively.

The majority (51 percent) of respondents to the survey cited insufficient availability of funds as the cause of late payments. The number of businesses who attribute late payments to a lack of funds has fallen dramatically from two years ago, but compared to 2013; the figure is again in the rise. Constrained cash flow was most often experienced in Greece (84 percent of respondents) and Italy (73 percent of respondents) and least experienced in Denmark. Improving access to funds is a key focus across Europe, with the U.K. and Italy recently introducing new legislation aimed at addressing lending that is still tight following the 2008 financial crisis.

Withholding payment to maintain liquidity was the second most cited reason for late payments according to the Atradius survey. Concerns of businesses using outstanding invoices as a form of financing was highest in Austria, Denmark and Germany, where nearly half of respondents said this was a major issue. The two most common reasons for late payments can be seen as two sides of the same coin. The report suggests to hide problems with liquidity, businesses may use their outstanding invoices to finance their business. “In the current business climate, it is therefore essential that companies focus on receivables management and credit insurance, to avoid cash flow problems that might set back their business,” Andreas Tesch, Chief Market Officer of Atradius said in a statement.

With average payment terms now stretching to nearly two months, delinquency rates are also on the rise in Western Europe. Invoices that still remain unpaid 90 days post-invoice now total nearly 20 percent of invoices. The rate of uncollectable accounts fell nearly 2 percent from last year. Write-offs make up a little over 1 percent of B2B receivables.

The media has largely eyed the U.K. market for its late payment problems, concentrating on the ongoing political debate about incoming legislation aimed at tackling the matter. But the Barometer’s results reveal that late payments are a point of friction for suppliers across Western Europe. What’s more, most of the nearly 3,000 individuals interviewed for the research do not anticipate any improvement. In fact, one quarter of those surveyed actually expect conditions to worsen over the next year. Despite moderate legislative efforts in some EU nations, late payments, it seems, have now been accepted as the region’s new normal.


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