EUR 350 billion in bad debt written off by European businesses

Highest level of bad debt losses to date and bleak forecast

• Well over half of the European surveyed countries show increased payment risks and as much as a third of countries are seen as having an emergency risk profile.
   
• The level of receivables having to be written off due to default on payment rose by 7 percent and corresponded to 3.0 percent of all outstanding receivables among European businesses. In total, receivables for EUR 350 billion were written off.
   
• Only four out of 31 countries surveyed showed decreasing bad debt losses – Denmark, Finland, Iceland and Sweden. Germany showed zero growth in written off receivables, although perceived future risk among businesses increased sharply. 
   
• In the United Kingdom, the percentage of receivables that were written off continued to rise from an already high level and in France the perception of future risk continues to be high. 
   
• Countries in southern and eastern Europe are struggling with long maturities, high levels of default on payment and widespread pessimism regarding their ability to rise from the current slump. 
   
• Companies are increasingly seeing effects from the recession on sales, liquidity and their ability to grow and find resources to invest in the future.

More than ever, it is apparent that the European economies are running at different paces, with a small group of countries acting as leaders and a large group as laggards. This is confirmed by the payment and credit statistics presented in Intrum Justitia’s ninth annual EPI survey (European Payment Index), in which almost 10,000 businesses responded to questions about payment patterns. Only four out of the 31 countries surveyed have seen their share of bad debt losses decrease – all of them Nordic countries.

Greece is the country where the EPI Risk Index has reached an extreme 195 out of possible 200 whereas Finland shows the lowest risk with 125. The index reaches from 100-200 and is presented in full in the appendix to this press release.

“The North is still holding on but Europe’s dependence on Germany is more evident than ever. The sharp rise in the perception of future risk among German businesses is really alarming and should send a chill down the spines of politicians all over our continent. There is an evident danger of bad turning worse in Europe,” says Lars Wollung, President and CEO of Intrum Justitia.

The inability among consumers, businesses and authorities to settle their bills on time has resulted in an increase from 2.8 percent to 3.0 percent of all outstanding receivables having to be written-off as bad debt. This represents a 7 percent increase in the amount of debt being written off, or a total of EUR 350 billion in the countries embraced by the survey. When looking at individual countries, the situation is worst in Greece (9.9%), Bulgaria (7.0%), Romania (6.1%) and Slovenia (5.7%).

The larger European economies show a mixed picture. The UK has large and increasing levels of bad debt losses, whereas Spain and Italy have huge payment delays and very long duration (i.e days to payment). Although France is in a better position, it can still be considered shaky due to its large share of businesses that perceive their risks from debtors increasing over the next 12 months.

One positive sign in the report is that the awareness of the danger of payment default seems to have increased among businesses. The time that it takes for a company to get paid decreased for the second year in a row. At the same time, the survey reveals a strong sense of dissatisfaction with governments, who are not perceived as doing enough to protect businesses against late payments. Overall, 70 percent of the respondents said they did not believe that their government was doing all it could to help. 

Despite the ongoing implementation of the Late Payment Directive across the EU, delayed payments are still a major threat to the growth and survival of European businesses. The EPI survey reveals that out of the 9,800 businesses that responded to the survey, 61 percent say they experience lost sales as a consequence of bills not being paid, 57 percent say that their liquidity has been impacted by the tough economic conditions and 48 percent say that they have decreased their investments in innovation as a consequence of the tighter financial situation.

“If this downward spiral continues, we will soon have a situation where businesses are unable to grow, where innovation is hindered and where the survival of businesses is threatened. All stakeholders involved, businesses as well as governments, have to do everything in their power to turn this development around. The long-term stability and prosperity of the European countries presuppose that businesses get paid on time,” Lars Wollung concludes.

Here are some suggestions on what businesses can do right now to improve their situation and get paid on time:

1. Create, continuously develop and implement a balanced and solid credit policy to manage your risks and growth.

2. Measure and follow up on the capital employed in your credit management process to reduce cost of capital.

3. Make sure you identified the customer you are doing business with.

4. Make a clear agreement with your customer stating all conditions for your business.

5. Integrate sales, marketing and financial department, and ensure an efficient invoicing process to avoid defaults.

6. Implement customer address checks regularly.

7. Monitor economic and industry information, as well as the solvency of key customers.

8. Reduce your loss of customers and strengthen your customer relations by customizing your credit process based on payment behavior and ability to pay.

9. Implement swift reminders and charge default interest when possible.

10. Balance your customer structure based on risk and growth potential.

11. Always take immediate action to get paid.

Click here to access the full report, with detailed statistics and a video with the CEO’s comments >>Social media release

To request the full report, please visit our webpage at http://www.intrum.com

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 3,500 employees in 20 countries. Consolidated revenues amounted to around SEK 4.1 billion in 2012. Intrum Justitia AB has been listed on NASDAQ OMX Stockholm since 2002. For further information, please visit www.intrum.com
 

About the European Payment Index 
The Intrum Justitia European Payment Index (EPI) has measured the risk of doing business in the European economies, by surveying businesses, since 1998. The survey was conducted simultaneously in 29 European countries plus Turkey and Russia between January and March 2013. The survey was conducted in written form and more than 9,800 companies responded. The Index is based on 21 different variables, including payment duration, payment loss, consequences of late payments and forecast on risk development, as well as technical financial data.

The questionnaire was translated into the respective national languages. The questionnaires were dispatched and returned on a decentralized basis by the national operations in the countries concerned, whereas the analysis was carried out centrally in accordance with predetermined guidelines. All information has been verified and uncertainties were not included in the evaluation. Furthermore, not all anonymously submitted questionnaires were taken into account in the evaluation. Companies in England, Wales, Scotland and Ireland were questioned online by a specialized company (BING Research). Bulgaria, Slovenia and Romania were researched by the national operations in those countries and double checked against a separate on-line survey by a specialized company (BING Research).

For further information, please contact:

Madeleine Bosch, Head of EPI Research, Intrum Justitia
Tel: +31 70 452 7323
Mobile: +31 64 6212 579
Email: m.bosch@intrum.com

Annika Billberg, IR & Communications Director
Tel: 46 8 546 102 03
Mobile: 46 702 67 97 91
E-mail: a.billberg@intrum.com

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. Intrum Justitia was founded in 1923, has around 3,100 employees in 22 countries and revenues of approximately SEK 3.8 billion in 2010. Intrum Justitia AB is listed on NASDAQ OMX Stockholm since 2002. For further information, please visit www.intrum.com