New signs of European downturn – Irish businesses failing to negotiate payment terms

Companies around Europe predict increased bad debt losses, later B2B payments and higher debt risks are ahead, according to the European Payment Report from pan-European credit management firm Intrum.

Figures from the report:

  • Irish businesses are more inclined to believe that risks from debtors will decrease, with 16% expecting a reduction in 2019, compared with 11% in 2018.
  • Businesses in Ireland are more optimistic about the benefits of a cashless society than their European counterparts. Of the 63% who believe a cashless society will occur within a decade, 55% felt this would decrease operational risk and 50% said it will reduce the risk of losing customers.
  • Half of Irish firms polled (50%) do not negotiate payment terms – the highest among all European countries polled, where the average is 21%.

Across Europe, the 2019 European Payment Report shows an increase in bad debt losses, following several years of declining write-offs. Almost one-fifth (18%) of the 11,856 businesses surveyed believe their country is already in an economic down-turn. In Ireland, predictions were more positive: only 4% felt there was already a downturn and only 26% believe there will be one within the next two years.

In Ireland companies wrote off 2.0% of their revenue because of bad debt losses, down from 3.1% the previous year – this is lower than the European average of 2.3%.

However, businesses said they are still being asked to accept longer payment terms than they are comfortable with. In the survey, 32% said they had been asked by a large/ multinational corporation to accept longer terms than they wanted, 23% by a small or medium-sized business and 6% by the public sector. Despite this, 50% of the Irish companies surveyed state that they do not negotiate payment terms. This is the highest reported share among all European companies polled, where the corresponding average is 21 percent. Additional measures proposed by Irish companies are to offer payment terms (24%) and accept longer payment terms but add a surcharge (11%).

There was overwhelming support for national legislation, with 64% of those polled saying they would like to see the introduction of new legislation to tackle late payment – higher than the European average of 41%. However, 66% said they do not use European Late Payment legislation designed to help businesses with the issue.

Meanwhile, 63% of Irish businesses surveyed believe a cashless society will occur within a decade (63%). Of those, 55% believe it will decrease operational risk and 50% foresee a reduced risk of losing customers. These figures are significantly higher than the European average of 28% of businesses predicting a decrease in operational

risk and 17% predicting reduced risk of losing customers.

Moreover, a cashless society in Ireland is expected to result in an increase in consumer spending (50%) and efficiency of payment routines and accounting (58%). The corresponding figures for all European businesses polled stand at 26% for increased customer spending and 35% for increased efficiency of payment routines and accounting respectively.

There is scope for Irish businesses to expand their external trade, as international payments account for only 8.6% of payments, compared to the EU average of 10.7%. More than a third of businesses (34%) cited local payment cultures as having a negative impact on these.

“The ability to predict cashflow is key to all businesses, as financial stability is the foundation for growth,” said Eddie Nott, Managing Director for Intrum UK and Ireland. “We also predict that Irish businesses will focus on ethical debt collection in the coming months and years, striving to enhance the experience of those in financial difficulty and retain customers for the long term.”

He added: “While Irish businesses are more optimistic about the impact of bad debt than many in Europe, they are still having to accept longer payment terms than they are comfortable with. There is scope for businesses to negotiate further on payment terms to counter this and make use of existing legislation to help stem the tide of late payment.”