The 2010 European Payment Index, compiled by Swedish credit management company Intrum Justitia, shows that written-off debt across Europe – caused by companies, public authorities and consumers not paying on time – has risen by €30 billion in the past 12 months.
A recast of the EU's Late Payments Directive, established in 2000, is set to be voted on in the European Parliament. The proposed revision was recently approved by MEPs in the internal market and consumer protection committee (IMCO).
The European Payment Index, which covers over 6,000 companies in 25 European countries, found that 2.6% of all transactions are written off, compared with 2.4% in 2009. European small and medium-sized enterprises (SMEs) are suffering the most, with a write-off proportion of 3%.
It shows that confidence among European companies is low, with just 10% of businesses forecasting improved conditions in the coming year. 52% said that they are not confident they will get the support they need from banks following the recession.
Intrum Justitia presented the study findings to EU legislators and industry stakeholders at a breakfast meeting organised by the European Credit Research Institute (ECRI) in Brussels on Tuesday (11 May).
Europe 'wasting' €300 billion
According to the 2010 European Payment Index, the amount of money that is owed to businesses in Europe but never paid totals €300 billion – a record figure that constitutes an 8% rise from 2009 and is equal to the national debt of crisis-hit Greece.
The study confirmed the divergence in payment behaviour across Europe, revealing that late payment risk is much lower in northern countries such as Finland, Sweden, Germany and the UK than it is in the south and east: the risk is higher in Portugal, Spain, Italy, Greece, Cyprus, the Czech Republic, Poland, Hungary and Lithuania.
Intrum Justitia chief Lars Wollung said the €300 billion wastage figure was "truly worrying" at a time of economic crisis. He described the "polarisation" between northern and southern Europe as a dangerous trend and said that credit management "must be a European issue".
Presenting the results, Intrum Justitia's Madeleine Bosch said that the statistics painted a "devastating picture," adding that payment failures are "hurting SMEs quite substantially".
Updated EU rules
The index figures come as the EU is set to change its rules on the issue, with a revision of the 2000 Late Payments Directive. The proposal, which has been scrutinised and adopted by the European Parliament's IMCO committee, is due for a plenary vote in June or July.
The IMCO committee agreed that government bodies should have just 30 days to pay invoices, but voted to exempt health services from the measures, meaning that public healthcare institutions will be given 60 days to settle their bills.
For business-to-business transactions, companies will be expected to pay within 30 days, but can agree on a payment period of up to 60 days in certain cases.
This constitutes a major departure from the original Commission proposal, which had focused exclusively on payments by public institutions, leaving the private sector free to negotiate their own contractual terms.
