Survey: Poor payment practices are causing existential financial difficulties for European companies.
- Payment practices have deteriorated substantially since 2019.
- Companies are experiencing liquidity shortfalls due to late payments.
- More and more companies are outsourcing their receivables management to external partners.
- Customers are being offered a growing range of digital payment methods.
For many European companies, everything is at stake: One in five companies is at risk because of customers paying their invoices late or not paying them at all. The EOS Survey “European Payment Practices 2022”, which polled 3,200 financial executives from 16 European countries, shows just how serious the situation is.
And there is one particular fact that reinforces the significance of these figures. During the same period, companies had changed their payment terms – to the benefit of customers. Across Europe, the average payment term was extended from 33 days in 2019 to 37 days in 2022. But despite these more generous payment terms, defaulting payers still exceeded the payment deadlines by much more than in previous years. On average, they settled their outstanding invoices 23 days after expiry of the payment deadline, the highest level since 2014.
Defaulting customers in financial trouble through no fault of their own.
For the creditor companies affected, looking into the causes of poor payment practices is of little help. Payment defaults have always been a nuisance, but now they are becoming an existential threat. The survey revealed that more than half of the companies owed money (51 percent) were already battling profit shortfalls, while well above a third (42 percent) now had their own liquidity issues. As a result, just under a third were reducing their investments or increasing the prices of their products and services.
It is concerning that payment practices have deteriorated so much just in the first half of the year. Especially because in light of the current economic figures and high inflation, we have to expect a further decline in payment receipts.
Companies are pessimistic about the future.
External receivables management can minimize defaults.
The success rates of debt collection providers show that with professional help, companies can mitigate the consequences of poor payment practices. Debt collection service providers can achieve payment receipts amounting on average to six percent of a company’s revenue.
Increasingly, European companies are recognizing these benefits. In this context, Eastern Europe is a front runner: There, half of the companies surveyed are already relying on the support of external partners, and the numbers keep going up, says Christina Schulz, Head of Division Management Eastern Europe. “Companies in Eastern Europe are benefiting from our expertise in receivables management and are able to focus on their core business. This not only helps the creditor companies but also benefits the economy as a whole,” says Christina: “Especially in view of the challenging economic figures, debt collection companies offer valuable support to companies and to the economic system, because they restore liquidity.”
From 2019 to 2022, the proportion of European companies working with external service providers to recover outstanding receivables increased from 42 to 46 percent. Many of these companies choose the EOS Group as their business partner: “As specialists in digital receivables management, and thanks to our international expertise in the NPL market, we are one of the leading providers in the sector,” says Marwin. “We offer fair prices and quickly provide companies with liquidity.”
Digital payment methods minimize defaults.
One term that keeps coming up in this context is “Buy now, pay later” (BNPL). It is still unclear whether this trend will actually evolve into a relevant payment method. BNPL is still a niche option, with just five percent of all European companies offering this payment method, according to the survey. In addition, inflation and rising interest rates are hurting the business model of the BNPL providers. Nevertheless, four out of ten companies (42 percent) see BNPL as a payment method that has the potential to develop into the counterpart of the credit card. And almost as many (39 percent) declared that offering this payment method was a “must”. One such example is Deutsche Bank, which aims to establish its own BNPL solution. Therefore, on this subject at least, there is a little optimism.