Businesses across Europe are spending more than 74 days per year – more than a quarter of the working year – chasing late payments, according to the annual European Payment Report from credit management services provider Intrum.
The 26th edition of Intrum’s study features the opinions of more than 10,000 companies across 29 European countries and sheds light on the multi-faceted challenges that European businesses are grappling with this year in challenging economic conditions.
Its findings show the time spent chasing late payments by European businesses costs the European economy €275bn. This is more than the entire GDP [Gross Domestic Product] of Finland at approximately €272bn.
Counting the cost across countries and sectors
Comparing across Europe, businesses in Finland are impacted by the longest delays in payments, with 51% of businesses spending at least 10 hours every week chasing late payments.
The UK (39%) is one of a number of countries where more than one in three businesses are having to find the same amount of time (at least 10 hours every week) to hunt down money they are owed by debtors, with France (49)%, Germany (47%), and Greece (46%) also badly impacted.
Across Europe’s domestic industries, Banking and Financial Services firms are most likely to see 10+ hours taken up every week by efforts to resolve late payments, with 45% of sector businesses impacted to this extent.
This is closely followed by two in five businesses in Business Services, Government & Public sector, and Mining & Minerals, 44% respectively, who also see the effort of sending reminders and making calls taking more than 10 hours each week.
In comparison, the Hospitality & Leisure sector, as well as Construction, are having to spend some of the lowest amounts of time each week chasing late payments. More than a fourth of businesses (29% respectively 28%) within these sectors are spending less than five hours per week to address late payments.
More than half of European firms (53%) say they are finding it increasingly difficult to reach mutually beneficial terms with customers and suppliers on payments which is leading to protracted negotiations and missed payment deadlines.
The same proportion (54%) of businesses have grown frustrated by customers asking them to postpone the date when they issue invoices.
Nearly two-thirds (61%) of businesses also say getting paid more quickly could help them to prioritise their sustainability performance, helping to contribute to a stronger, greener economy, rather than needing to focus on efficiency.
As sustainability becomes a stronger motivation behind customers’ buying decisions, a shift away from sustainable practices to maintain efficiency could have negative long-term implications for businesses.
Chasing late payments
Among businesses that spend less than five hours a week chasing late payments, nearly three fifths (58%) take legal action to chase down debt while a third (34%) have clear internal debt recovery processes. Among those spending more than 10 hours a week chasing overdue funds, these figures drop to 53% and 28% respectively.
In contrast, among the businesses that take the longest to chase late payments, mediation and alternative dispute resolution processes are more popular approaches. These provide a less confrontational way to engage with clients and customers, but Intrum’s findings suggest they come at the cost of longer resolution times.
In the UK, three in five (60%) businesses opt to take legal action to address late or non-payment from clients, with 40% opting for internal recovery processes and a further 27% choosing mediation and alternative dispute solutions.
Worryingly however, 7% of UK businesses admit they do nothing to resolve late payments, risking a significant loss to income over time.
“Businesses across the continent have been forced to operate in a constant state of challenges. The perfect storm of high inflation, rising costs and a challenging labour market so soon after the pandemic has seen growth and innovation fall to the wayside for many businesses struggling to look further ahead”, said Andrés Rubio, President & CEO of Intrum.
He added, “Late payments have always plagued businesses but what was once an inconvenience has now become a top priority on the management agenda.
“Many businesses admit that resources currently spent chasing late payments could be redeployed for growth, and invested in digital transformation and innovation, hiring and reskilling and geographical expansion, but in the short-term this simply isn’t possible.
“The scourge of late payments means many firms are throwing good money after bad in an attempt to claim what is rightfully theirs.
“Prompt payment habits from suppliers can help businesses prioritise growth and be in a more positive position to recover more quickly than their peers as the economic picture brightens.”