Late payment reinforces the effects of the credit crunch

In 2007 the European business community missed out on a record amount of EUR 250bn as a consequence of outstanding invoices. Southern Europe heads the league of payment defaulters, while the Nordic countries are the best payers overall.

• European business community misses out on EUR 250bn annually
• Late payment of invoices 55.5 days on average
• Governments worst payers
• Speedier debt collection crucial to survival of SMEs

These figures are shown in the latest annual European Payment Index assessing payment behaviour in 25 countries, including most of the EU member states. The Index is compiled by Intrum Justitia, the largest European credit management services provider.

Intrum Justitia fears that the European sum of outstanding invoices will continue to increase in response to the credit crunch and the high food and oil prices.

"This is a worrying development. The poor payment behaviour has a strong inhibiting effect on the development of the European economy", says Michael Wolf, President and CEO of Intrum Justitia.

Not only the total sum of outstanding invoices rose to record heights. The percentage of unpaid invoices was also at its highest level ever (2%, compared to 1.9% in 2007). The average number of days before an invoice was paid in Europe rose to 55.5 – almost 4 weeks too late.

Once more European governments proved to be the worst payers, taking an average of 65 days to pay an invoice. The corresponding figure is 55 days for the business community and 40 days for the consumer.

Inadequate routines
The most important reasons for non payment or late payment lie in inadequate routines and lack of competence of the business community itself when collecting payments.

Michael Wolf explains that, "Businesses are allowing themselves to be blinded by the good economic situation of the past years. They are doing well and making good profits. In addition they find it awkward to address their customers on the subject of their payment behaviour. They have lost sight of the fact that the banks are responding to the credit crunch by becoming more difficult and expensive when it comes to providing loans. This really has to change."

Higher risk in Southern Europe
Greece, Cyprus and Portugal are the countries where invoices wait longest to be paid, while the Scandinavian countries pose the smallest risk.

Intrum Justitia finds that it is absolutely crucial for the business community to take a much stronger line on implementing credit management.

One can see the emergence of a vicious circle, in which the large businesses are the first to start to pay more slowly, according to Intrum Justitia. Smaller businesses are forced to follow suit. This has dramatic effects on economic development; forward propulsion is lost because investments are postponed. Company cash is 'frozen' in unpaid invoices and borrowing from banks continues to be difficult and costly.

"All of this can be avoided by good credit management", says Michael Wolf.

Intrum Justitia argues in favour of a cultural change, including better regulation of the market. The principles of the Scandinavian countries should serve as an example. In these countries an average of three out of four invoices are paid on time and only 1% of all invoices remain unpaid.

The Intrum Justitia Group is the European market leader in the field of Credit Management Services and is quoted on the Stockholm Exchange. The company supplies innovative and high quality solutions for the collection of debts from consumers and companies at home and abroad: A complete package of credit management services that can be implemented in all the various stages of the financial process; from invoicing to collecting. The Intrum Justitia Group has more than 90,000 clients and about 2,900 employees in 24 European countries.