presents www.ddisoftware.co.uk sales@ddisoftware.co.uk Advancing the credit profession / www.cicm.com / <strong>September</strong> <strong>2020</strong> / PAGE 12
OPINION Unparalleled Lines Prompt payment is crucial if Europe’s companies are to emerge from the present crisis intact. AUTHOR – Heather Greig-Smith BUSINESSES across Europe face unparalleled uncertainty because of the COVID-19 crisis. With many operating in survival mode, safeguarding a steady cashflow is more important than ever. However, the drop in income companies have faced as a result of Government restrictions and lower consumer demand means paying on time is a more complicated issue than ever. During February and May, credit management group Intrum conducted a survey of financial executives and business leaders in 9,980 companies across 29 European countries – providing snapshots of changing sentiments pre COVID-19 and after the crisis hit. Unsurprisingly, businesses reported a significant increase in financial stress, with 51 percent saying their survival was threatened by late payment. Across Europe, hospitality and leisure businesses have been particularly hard hit by COVID-19, with Government restrictions on travel, shopping, dining out, exercise and other leisure activities crushing many. These measures are likely to have a lasting impact – 42 percent of respondents in this sector predicted recession would have a severe impact, the highest level of the 11 industries surveyed. By contrast, Dutch businesses are more optimistic – only 14 percent predict recession will have a severe impact, the lowest figure across Europe. “Optimism is likely to vary over time depending how a country responds to measures to tackle the virus and on the level of Government intervention to protect businesses,” says Intrum UK Managing Director Eddie Nott. LIQUIDITY CHALLENGE Even in normal times, late payment poses a significant challenge to many businesses. However, it creates a greater threat to survival in today’s environment, with 51 percent saying late payment reduces their liquidity, compared with 23 percent pre-COVID. Sharp drops in GDP across Europe are decreasing revenues for businesses and restricting cashflow. Over half (52 percent) of UK companies say that macroeconomic uncertainty has caused them to extend their payment terms to suppliers over the coming year – up from the European UNFAVOURABLE TERMS The crisis has undoubtedly forced businesses to accept unfavourable payment terms. The survey found that 80 percent of the UK’s businesses have accepted longer payment terms than they are comfortable with as they do not want to damage client relationships – and 71 percent across Europe said the same. This is despite the fact that 44 percent of UK businesses said late payment by customers threatens their survival – up significantly from the 17 percent pre-COVID rate. According to UK respondents, the risk of pan- European recession is the main challenge facing customers paying on time over the next twelve months. More than two-thirds (67 percent) rank this among the top three challenges, compared with 57 percent across Europe. When broken down, the figure increases from 50 percent of those surveyed before the COVID-19 crisis to 75 percent after the crisis hit. With Europe heading for recession, 42 percent of British businesses expect it to have a severe impact on them, and 31 percent plan to cut recruitment as a result. Spanish businesses are the most concerned by the economic forecast, with 92 percent citing European recession in the top three payment challenges over the next year and more than half saying it will have a severe impact on their business. average of 41 percent, and the highest in Europe. “The pandemic has piled pressure onto businesses in an unprecedented way and many firms do not have the flexibility to survive late payment,” says Eddie. “With pressure on cashflow, timely payment is more important than ever as businesses struggle to navigate the loosening of lockdown restrictions. The long-term economic effects of the COVID-19 crisis are not yet clear, but in the short term many businesses face a battle for survival.” Against this backdrop of exceptional change and disruption, Advancing the credit profession / www.cicm.com / <strong>September</strong> <strong>2020</strong> / PAGE 13 “With pressure on cashflow, timely payment is more important than ever as businesses struggle to navigate the loosening of lockdown restrictions.’’ continues on page 14 >
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