A mix of failed stimulus initiatives and ongoing problems with delayed and late B2B payments are combining to create an environment across Europe in which corporations are struggling to grow, according to new research.
Analysis from Intrum Justitia AB, published in its most recent European Payment Report 2016, finds evidence that government efforts to stimulate corporate growth have failed to catch on. Instead, it could be up to corporates themselves to fix the issues of stagnancy, analysis said.
Lackluster Late Payment Directive
The Late Payment Directive, for example, hasn't proven effective at shortening payment terms for suppliers across the EU, researchers found.
Three years after its implementation, the directive has secured recognition among EU businesses; 28 percent of firms surveyed said they were familiar with the initiative. Only one-fifth of those that are familiar with it, however, reported to have seen a positive impact from the policy.
Even with the federal effort to encourage on-time payments to suppliers, European companies are struggling in this regard.
Italy, Greece and Portugal were identified as the markets in the EU with the longest B2B payment terms; Italy, Portugal and Croatia have the highest instances of late payments, according to the report.
Smaller businesses, unsurprisingly, are more vulnerable to the negative impact of getting paid late. According to Intrum Justitia, 28 percent of SMEs said they aren't using bank guarantees, credit insurance or other means to protect themselves against delayed payments, while just 9 percent of large companies said the same.
Yet, late payments are leading to negative consequences. Between 2015 and 2016, there has been an increase in the number of companies reporting additional interest costs, an increase in the number of firms reporting a threat to survive and an increase in the instance of dismissing employees, each as a direct result of late payments.
Nearly half of SMEs surveyed (45 percent) said they have simply accepted the fact that they will see longer payment terms and are comfortable with the trend.
But according to Intrum Justitia President and CEO Mikael Ericsson, SMEs' acceptance of late payments does not justify the practice.
"To put pressure on smaller companies to accept longer payment terms, while creating instability, insecurity or fewer job opportunities, cannot be in any business leader's long-term interest," the executive said. "On the contrary, there is a link between corporate responsibility for shorter payment times and a reduction in their long-term risk."
"I am convinced that questions about fair payment terms should be lifted high up on management's agenda and become an integrated part of a modern company's overall sustainability efforts," he continued.
According to analysts, there is evidence that a change in corporate attitudes and guidelines — not government initiatives — could be key to solving some of the problems of late payments, especially as the majority of SMEs surveyed said they have seen delayed payments because of "intestinal" behavior on the payer's side.
Ineffective Interest Rates
While government policies to encourage businesses to pay their suppliers on time have been questionably effective, there are other ways officials have failed to boost corporate growth, according to Intrum Justitia.
Keeping interest rates low hasn't caused businesses to boost their investments, the report found; 84 percent of companies surveyed said low interest rates haven't had an impact on their investment interests. It's actually an increase from the 73 percent that said the same last year, researchers noted.
"Evidently, the strategy of keeping interest rates record low for more than a year has not created that much sought-after stability," the report concluded, noting that stability and optimism are key to economic and corporate growth.
Reports by Bloomberg highlighted the findings, adding that the negative interest rates seen across Europe since mid-2014 haven't propped up GDP performance. The European Commission estimates that GDP growth will slow to 1.6 percent this year, reports said, compared to 2.3 percent in the U.S.
The investment in consumption, which would lead to job creation, has yet to result from keeping interest rates at near-zero, the report concluded.
"A calculation of an investment includes assumptions of the future," Intrum Justitia stated. "To get the calculation to go together, those assumptions need to include a belief in stability and prosperity in that future. Perhaps the negative interest rates do not signal that stability at all — rather that we are, still, in an extraordinary situation?"