CM September 2020

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 / September 2020 / 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 >