The latest research from credit insurer, Atradius, shows that overdue payments are increasing across Western Europe.
According to the Payment Practices Barometer, in the region as a whole, the number of late payments accounted for 53% of the total value of invoices. This was an increase from 47% last year. 10% of the total value was written off as uncollectable, an increase from 8% in 2020.
On average, 47% of businesses in the region reported waiting longer for invoices to be paid than last year. The same figure had seen no change in the length of time it took invoices to be paid, with just 6% saying that invoices were being paid quicker.
Overdue payments in the UK
The picture for businesses in the UK is looking just as bleak.
78% of businesses said that their average payment terms for customers were up to 30days, with 12% offering terms of between 31 and 60 days. However, 44% of the total value of B2B invoices were reported as overdue in the past year. Businesses in the UK wrote off 8% as uncollectable.
The proportion of B2B sales made on credit continues to rise in the UK, with 53% of all sales made this way in 2021. The main reasons businesses gave for offering more trade credit in the past 12 months were:
- To encourage sales to existing customers (48%)
- To win new customers (32%)
- To stay competitive (18%)
- To allow customers to pay (3%)
The problem of late payments has a knock-on effect on the cash flow of the supplier, meaning they have to take measures to manage their liquidity. The survey found that 50% of UK companies had to increase the time, costs and resources to chase overdue invoices in the last year. 26% were forced into delaying payments to their own suppliers. 28% had to pursue additional financing measures and 41% strengthened their internal credit control procedures.
The main tool that businesses use in order to manage the credit risk is self-insurance (70%) through setting aside funds to offset potential bad debts. 53% of respondents offer discounts for the early payment of invoices and 61% have adjusted credit terms. The other tools used by businesses are sending outstanding invoice reminders (50%) and the use of trade credit insurance (55%). 35% of companies questioned plan on increasing their use of trade credit insurance in the next few months.
The problem of overdue payments hasn’t impacted on the optimism of businesses. 82% of respondents in the UK said that they were positive about business growth expectations next year. However, companies do think there is an ongoing uncertainty about the pandemic and the impact on both domestic and global economies.
Top business risks for 2022
The Payment Practices Barometer Report also questioned businesses on what the potential risks were for the coming year.
The top responses were:
- Prolonged downturn of the global economy (46%)
- Protraction of the pandemic (40%)
- Slower or no rebound of the domestic economy (38%)
- Slower or no rebound of certain industries (29%)
- Liquidity shortfalls (27%)
- Ongoing supply chain disruptions (27%)
- Increase in insolvencies (26%)
- Cyber and fraud risks (24%)
- Restriction of movement of goods (23%)
According to Andreas Tesch, Atradius Chief Market Officer, these survey results show businesses poised at a pivotal time. Tesch said “Businesses have already weathered the pandemic driven downturn, but there are signs that next year could be even more challenging. On a global level, we are expecting to see insolvencies increase by about 33%. In Western Europe specifically, estimates point to an uptick in business failures in Italy and the UK of 34% and 33% respectively. Businesses should take note of the heightened risk environment and take steps to protect their accounts receivable.”
The Atradius Payment Practices Barometer survey questioned businesses from 13 countries in Western Europe during Q3 2021.