New signs of economic downturn - British businesses offering longer payment terms
Companies around Europe predict increased bad debt losses, later B2B payments and higher debt risks are ahead, according to the European Payment Report from pan-European credit management firm Intrum.
Figures from the report:
- UK companies wrote off 3.0% of their revenue because of bad debt losses in 2018, up from 2.0% in 2017 – but lower than 2016’s reported 4.7%.
- UK businesses offer more generous payment terms than most European countries to corporate customers and consumers (45 days and 25 days respectively, compared with European averages of 34 days and 21 days).
- Almost a third (32%) of UK businesses using international payments said currency issues are negatively affecting them.
Across Europe, the 2019 report shows an increase in bad debt losses, following several years of declining write-offs. Almost one-fifth (18%) believe their country is already in an economic down-turn. In the UK, 17% felt there was already a downturn and more than half (54%) believe there will be one within the next two years.
In the UK companies wrote off 3.0% of their revenue because of bad debt losses for the year 2018, up from 2.0% the previous year – but lower than the 4.7% reported in the 2017 report.
However, businesses said they are still being asked to accept longer payment terms than they are comfortable with. In the survey, 22% said they had been asked by a large/ multinational corporation to accept longer terms than they wanted, 24% by a small or medium-sized business and 10% by the public sector. These figures were lower than in Europe as a whole, where the averages were 27%, 39% and 13% respectively.
While the 11,856 businesses surveyed around Europe overall showed a pattern of slightly increased risks related to payments and debt, the view of where a country finds itself in the current business cycle varies substantially between regions.
In countries such as Greece and Italy, businesses see the recession as a current reality, while most companies in Austria and Germany do not even foresee a recession in the coming five years.
In the UK, businesses that are expecting recession plan to cut costs (35%) and be more cautious about taking on debt (30%). Only 20% plan to increase their sales operations to manage a potential downturn, while 32% plan to take measures to secure payments from customers. One fifth (20%) of those who see or foresee a recession do not plan to take any measures.
Meanwhile, international payments account for 10.4% of payments. British businesses reported that customer payment methods (30%), local payment cultures (28%) and currency issues (32%) are having a negative impact on these.
“The ability to predict cashflow is key to all businesses, as financial stability is the foundation for growth,” said Eddie Nott, Managing Director for Intrum UK and Ireland. “Increasingly, UK businesses are seeking more ethical ways in engage with their customers in debt and this approach will be the bedrock of collections in future.”
He added: “While British businesses are more generous in their payment terms than many in Europe, they are having to accept longer payment terms than they are comfortable with. With bad debt edging up in the latest survey, it is important that government and business continue to tackle the issue of late payment.
About Intrum European Payment Report 2019
The European Payment Report 2019 is based on a survey that was conducted simultaneously in 29 European countries between January 31 and April 5, 2019. In this report, Intrum gathered data from 11,856 companies in Europe (639 of them in the UK) to gain insights into the payment behavior and financial health of European businesses. The survey was conducted among people who have identified themselves as either CFO, Head of Credit, Business Controller or similar.