Late, Unpaid Bills Slowing Europe’s Economic Recovery

Businesses across Europe are testing limits as unpaid bills and late payments continue to prolong economic recovery.

According to Reuters, Intrum Justitia’s European Payment Index reported that European companies have suffered a €350 billion loss from late payments and unpaid bills. The number came up to 3 percent of all receivables, which was a 7 percent increase from the year prior.

With new regulations frequently imposed on bank lending, job cuts and economic instability, small businesses fear the unpaid bill culture will only increase.

Late or unpaid payments for services have remained a perpetual problem for smaller businesses in Europe, specifically in the supermarket sector. The supermarkets in Europe are notorious for depleting suppliers and driving a hard bargain to facilitate weekly offers in retail stores.

The Forum of Private Business, a UK-based organization that backs SMEs, was forced to out UK grocer Sainsbury for stretching payment periods to an unreasonable 75 days.

The index surveyed a total of about 9,800 companies across 29 countries in Europe. The report highlighted a significant gap between north and south Europe’s economic state.

Businesses in the southern regions, such as Greece, Cyprus, Hungary and Portugal were countries listed as most susceptible to late or unpaid bills. Heading north to Nordic regions, countries such as Germany, Switzerland and Austria were reported to be in the least danger for receiving late payments.

Even if countries such as Germany are not currently experiencing high volumes of unpaid services, it is likely they will inevitably be affected because of trade operations with other European countries. The European economy is a connected web, and if smaller businesses in other regions aren’t making payments on time, stronger countries will likely be hit in a substantial way.

Many businesses in Europe have reported that they had to cut back on putting money towards innovation because growth was stunted and the future didn’t look promising either.

Lars Wollung, president and CEO of Intrum Justitia Group, stated, “If business society says its going to be worse, they plan for it to be worse and if they plan for it be worse its going to turn into reality.”

In March the European Union’s Late Payment Directive was introduced, which mandated that bills must be repaid within a 30-day period in the public sector and within 60 days in the private sector. Ideally this regulation will help businesses receive payments on time, but the bill does not directly address the power balance held between larger corporations and the small suppliers.

Wollung said, “You have big businesses trying to renegotiate the terms of invoices anyway. Companies don’t like to say no for fear or losing that lucrative contract.”

To read the full story at Reuters click here.