More than a third (37 per cent) of European businesses are increasingly paying their suppliers later than they would ever accept from their own clients and customers. This is according to the findings of Intrum's 2023 European Payment Report. In the UK, this figure rises to 54 per cent, a significant spike compared with neighbouring European countries such as France (36 per cent), Germany (36 per cent) and Spain (33 per cent).

While companies promote on-time payments, most are not leading by example. Payment hypocrisy is becoming increasingly prevalent among businesses of all sizes. This means having to shoulder late payments is not just common but expected across all sectors.

That said, businesses show regret when making late payments; over half (54 per cent) of European businesses would like to pay their suppliers faster but don't feel it is feasible in the current economic climate of high inflation, rising interest rates and increasing labour costs.

Accepting delayed payments to preserve good client relations

The European Payment Report reveals more than half (53 per cent) of businesses will accept longer payment terms than they are naturally comfortable with, because they do not want to damage client and customer relationships. Looking across sectors, construction firms (57 per cent) are the most likely to accept late payments to preserve good client relationships.They are closely followed by businesses in government and the public sector (56 per cent) along with transport and logistics (56 per cent).

Worryingly, 47 per cent of European businesses admitted that in the past year they have been forced to accept longer payment terms in order to avoid the risk of their clients and customers going bankrupt. And the bankruptcies have been visibly on the rise since mid-2022.(1)

Does size matter?

While larger companies have historically used their size and influence to gain favour and leniency, Intrum's research shows a growing number of SMEs also asking for more flexibility around payment terms. Nearly two fifths (39 per cent) of SMEs said they would be more likely to request longer payment terms from suppliers or pay an invoice later than agreed, compared to 35 per cent of large businesses. This is likely because smaller businesses have relatively lower financial buffers and are therefore more susceptible to difficult economic environment.

In response to requests for longer payment terms, 53 per cent of businesses admitted they would accept this from large companies but are more reluctant to extend the same courtesy to SMEs. Just over a third (38 per cent) of businesses across Europe said they would accept longer payments to SMEs.

The cause and cost

When looking at the reasons for late payment hypocrisy, apart from difficult economic environment, half (50 per cent) of European businesses state that when they grow, they struggle to upgrade their processes and admin in a timely manner.

Furthermore, 50 per cent of businesses blame late payments on poor routines and processes, claiming these processes are not strong enough to support financial sustainability despite economic uncertainty. This highlights the growing pains involved with scaling up a business at pace in the current environment and the deep-rooted issues associated with late payments.

Earlier research from Intrum showed that businesses across Europe are spending more than a quarter of the working year, 74 working days, chasing late payments*. The time spent chasing late payments by European businesses costs the European economy €275bn**. This is more than the entire GDP [Gross Domestic Product] of Finland at approximately €272bn***.

Dealing with late payments helps businesses go for growth

If late payments became less commonplace this would enable businesses to instead invest this vital cashflow into other areas of their business, positioning them well for long-term growth. Two in three (65 per cent) European businesses said that faster payments from their clients and customers would enable their company to pay their own suppliers faster, enabling them to preserve client relationships. 62 per cent of businesses said having to shoulder less late payments would enable them to increase investment in products and expand their service offerings.

"An increasing number of businesses are pushing boundaries and taking risks when it comes to making payments to their suppliers, by failing to practice what they preach. This is a trend we are seeing across the board, from large businesses right the way through to SMEs and can have dangerous consequences for key working relationships.

"Not making payments on time has knock on effects and hinders all businesses' ability to invest in long-term, sustainable growth. In extreme cases it can even mean businesses can't pay their own staff on time or have to miss on their financial obligations while they wait to be paid, which could lead to bankruptcy. Balancing short-term cash flow pressures while continuing to prioritise making timely payments is crucial to ensure businesses maintain good client relationships and are viewed positively by both customers and suppliers.

"It is also vital that businesses have robust routines in place to manage late payments. Our research highlight a correlation between businesses that pay on time and those that have put codes of ethics in place. Businesses that make a public commitment to paying suppliers on time are more likely to do so", said Anna Zabrodzka-Averianov, Senior Economist at Intrum.

(1) https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Quarterly_registrations_of_new_businesses_and_declarations_of_bankruptcies_-_statistics