Companies tighten credit measures on consumers
Measures by companies to tighten credit conditions on consumers are helping speed payment according to Intrum Justitia’s European Payment Index 2014 (EPI 2014). The average time to await payment from consumers has fallen from 36 days to 34 as companies in Western Europe increasingly request payment in advance or with more securities.
Consumers, businesses and the public sector are increasingly paying their invoices on time. However, although the average B2B payment duration has fallen from 49 days to 47, the amount of bad debt that is written off has risen to its highest ever level. And the difference in payment habits between European regions is substantial with countries in South East and East Europe suffering the highest bad debt losses.
The situation is worst in Croatia, Greece and Serbia, where the companies participating in EPI 2014 were forced to write off ten per cent of their yearly revenue. Bad debt losses also increased in the more stable, financially disciplined Nordic countries, such as Finland (1.6%) and Sweden (2,1%), as well as in Switzerland (1.9%), although they remain among those countries reporting the least bad debt loss.
- The increase in bad debt losses is accompanied by a decrease in the average payment duration, suggesting that companies meet increased threats to cash flow by tightening credit management for all debtors, not least the consumers, says Lars Wollung, CEO & President of Intrum Justitia.
To meet liquidity problems, companies have increased their active cash management, which has led to consumers today paying at 34 days on average compared to 36 days 2013. In business-to-business sectors, average payment duration has shrunk from 49 to 47 days. And the public sector average payment duration has shrunk from 61 to 58 days.
Looking ahead, 46 per cent of the companies across Europe pessimistically see a greater risk of their business customers defaulting in the coming 12 months – just five per cent see a lower risk.
- But there are signs of hope for all the pessimism. EPI 2014 clearly underlines the key role of credit management tools at a micro level. This year, we see that many more companies now have credit management processes in place, which contributes to business confidence, investments in the future and, ultimately, the wellbeing of Europe’s citizens, says Lars Wollung.
- Many believe that businesses like the one I’m heading are better off when consumers have a hard time paying on time. That is totally wrong. Cash flow, business liquidity, is a key for business success. And a corner stone for a sound economy. That’s why our job helping businesses to implement better credit management is so important for all of society, explains Lars Wollung.
In the report Intrum Justitia lists what measures businesses can take in order to improve their cash flow and prevent bad debt losses:
- Create, continuously develop and implement a balanced and solid credit policy to manage your risks and growth
- Measure and follow up on the capital employed in your credit management process to reduce cost of capital
- Make sure you know the customer you are doing business with
- Write a clear contract with your customer stating your terms of business
- Integrate sales, marketing and financial departments, and create an efficient invoicing process to avoid defaults
- Monitor economic and industry information, including solvency of key customers, and regularly check customer addresses
- Reduce customer losses and strengthen customer relationships by tailoring your credit process based on payment behavior and ability to pay
- Implement swift reminders and charge default interest when possible
- Balance your customer structure based on risk and growth potential
- Act immediately to get paid, don’t delay
About Intrum Justitia
Intrum Justitia is Europe’s leading Credit Management Services (CMS) group and offers services designed to measurably improve clients’ cash flows and long-term profitability, including purchase of receivables. Founded in 1923, Intrum Justitia has some 3,600 employees in 20 countries. Consolidated revenues amounted to around SEK 4.6 billion in 2013. Intrum Justitia AB has been listed on NASDAQ OMX Stockholm since 2002. For further information, please visit www.intrum.com.
About Intrum Justitia European Payment Index
The survey was conducted simultaneously in 31 European countries plus Turkey and Russia between January and March 2014. The survey was conducted in written form and more than
10,000 companies responded. The questionnaire was translated into the respective national languages. Dispatch and return of the questionnaires was carried out on a decentralised basis by the countries concerned, whereas the analysis was carried out centrally in accordance with pre-determined guidelines. All information has been verified and uncertainties were not included in the evaluation. Furthermore, all anonymously sent questionnaires were not taken into account for the final evaluation. Companies in UK, Ireland, Greece, Cyprus, Lithuania, Latvia, Serbia, Bosnia, Russia and Turkey were also questioned on-line by a specialised company (BING Research).
For further information, please contact:
Madeleine Bosch, Head of EPI Research, Intrum Justitia
Mobile: +31 64 6212 579
Email: m.bosch@intrum.com