Article
Written by Kady Potter
Posted on 25/09/2014

Debt collection harder in certain European countries

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EOS KSI conducted a survey of debt collection habits in 12 European countries this year, polling 2,600 financial experts on the conditions in their regions. The study is now in its seventh year, tracking changes in payment and economic trends.

 

Spotlight on Eastern Europe

The report highlights issues in Romania and Bulgaria as primary concerns. Debt collection is a growing practice in Eastern European countries.

In Romania, only 70 per cent pay outstanding invoices on time. On average, customers in the country take 33 days to pay – businesses take 40. The decline in prompt payments continues for a second consecutive year.

The situation in Bulgaria is similar, with the same 70 per cent payment rate. In the West, the UK doesn’t fare much better with a 72 per cent average.

An unusual consumer focus

For Eastern European countries, one of the main reasons cited by companies for their late payments is the bad debt created by their own customers. Businesses in several countries assume that the consumer will not pay. This stands as the third most important reason for defaults as cited by 25 per cent of respondents.

Interestingly, businesses do recognise that this practice is not always deliberate or malicious. Over one in five of those surveyed admitted that they believe customers simply forget the invoice is outstanding.

Not all businesses are prompt

Payment defaults are prevalent amongst companies, as it’s suggested that more than one in every four invoices issued to businesses are not settled on time. B2B customers appear to wait the longest to make payments, and across Europe the average time is more than a month. The main reason given here was temporary cash flow issues, cited by close to a third.

Western Europe’s more favourable conditions
The most reliable invoice payers were found in Germany, where 83 per cent of people settle debts on time. France is not far behind at 80 per cent, and both of those figures are above the 75 per cent average for the whole of Europe.

What can businesses do to mitigate risk?
The issue of bad debt in certain countries feels cyclical – if businesses can’t trust their customers to pay, the invoice is more likely to be classed as a debt. There are consumers who deliberately do not make payments or are simply forgetful, yet companies must be wary of tarring their entire target audience with the same brush.

As for business cash flow and debt issues, these are separate concerns to be managed internally. There are many actions which can be taken, supporting continued business growth and an influx of capital.