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News : EU Economy Last Updated: May 24, 2011 - 5:16 PM

European companies customer bad debt rises to record €312bn
By Finfacts Team
May 24, 2011 - 4:20 AM

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Research released on Monday in Stockholm by one of Europe's biggest credit management services company, Intrum Justitia, shows that annual European companies written-off customer bad debt - - monies owed to a business but never paid - - has reached the record level of €312bn - -  a figure exceeding the EU/IMF financial assistance package of €273bn* granted to Greece, Ireland and Portugal. 

Intrum Justitia’s annual European Payment Index survey of almost 6,000 European businesses also shows a divided European economy, with large differences between different countries.

“Talking about a single European economy being in or on its way out of a recession is not relevant any more. Instead we see a much more fragmented picture, where some countries are doing better and better and others are becoming worse and worse. Billions of euros have been poured into Greece, Ireland and Portugal. Although we have seen a very troubling development, these economies together only make up a little more than a third of the UK GDP. The surging debt write-offs in the UK are a clear call for action in combating late payments,” comments Intrum Justitia CEO, Lars Wollung.

Now in its seventh year, the survey also reveals that days to payment continue to increase.

The EPI 2011 shows the average time from an invoice being issued until payment is received to be 56 days for business-to-business payments and 65 days when the public sector is to pay an invoice, business-to-business increasing by one day and public sector with two days compared to the previous year.

28% of all companies in Europe see late payments as a threat to survival whilst 45% see late payments prohibiting growth. In the UK 55% of companies see late payments as a threat to survival and 65% see it as prohibiting growth. In Germany, on the other hand, only 17% of companies see late payments as a threat to survival and 23% see it prohibiting growth.

In October 2010, the European Parliament adopted a directive stating that unless otherwise mentioned in a contract, the business-to-business deadline for payments is 30 days. Member states have two years to adopt the new directive. The Intrum Justitia EPI 2011 clearly shows that time to payment in Europe has to decline drastically in the years to come to meet the implemented directive on late payments.

“The new European Late Payments Directive is a step forward in getting a better payment culture in all of Europe and allowing businesses to help put Europe on a path of solid economic recovery. However, legislation is not enough – companies need to have better credit and cash-flow management systems. Pre-emptive work on credit policies and credit decisions, by giving credit in a responsible way, is essential and should be a top priority for enterprises all over Europe,” says Lars Wollung. 

On average, the public sector in Europe takes 65 days to pay its invoices. Payments from consumers are made in 40 days.

“Governments all over Europe must also take their share of the responsibility, since public authorities more often than not are the worst late payers. Governments should be at the forefront in developing a sound payment culture. One important step in this direction would be committing themselves to fast-tracking the implementation of the new Late Payments Directive – not waiting the full two years.

Joint efforts on late payments would be a necessary and efficient complement to other initiatives taken to restore the European economy,” says Lars Wollung.

European Payment Index Report 2011

EPI Tables 2011

*IMF/EU has granted €110bn to Greece and €85bn to Ireland (includes own funds of  €18bn) and €78bn to Portugal.

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