European Payment Index

Intrum Justitia's European Payment Index compares payment habits in 23 European countries with a locally administered biannual survey of over 6,500 companies.

According to the findings, UK businesses are suffering because of poor payment practices. This is having a domino effect on everyone involved in the payment process, especially suppliers at the end of the supply chain.

The research reveals that the main reason for late payment is that companies' own customers pay too late themselves. This acts as a brake on the working capital available within organisations to meet liabilities to suppliers. Companies therefore take a pragmatic decision and pay only those that can't wait. Suppliers providing noncritical services or those that can't leverage a strong commercial position will inevitably join the back of the queue and, in some instances, go out of business.

UK companies make a clear distinction between suppliers that are replaceable and those that are not. 'Replaceable suppliers' bear the highest risks, irrespective of the amount and age of the payment owed, whereas critical suppliers, taxes and banks are the top three payment priorities, according to the UK Payment Index. The research reveals that UK businesses with financial difficulties show markedly selective behaviour in meeting their obligations and concentrate purely on their own interests.

According to the survey, business customers are the slowest payers in the UK (18 days payment delay) followed by public authorities (16.8 days payment delay) while consumers are the fastest payers. Conversely, across Europe public authorities are granted the longest contractual payment terms. Including a payment delay of 24.7 days, it takes public authorities across Europe on average 68.1 days to clear their debts, 10 days longer than business customers and even 29 days longer than consumers take to pay.

The majority of UK companies surveyed do not foresee any considerable change to payment risks during 2005. 14.7 per cent hope for a decrease and 20.3 per cent expect increasing risks.

A record number of insolvencies in many European countries is also reported in the latest findings. In France, company insolvencies rose by more than four per cent, in Austria by more than 10 per cent and in Greece by over 20 per cent. In 2004, personal insolvencies also increased by more than 20 per cent in the UK and by over 25 per cent in Germany and Austria.

Shaun Purrington, Commercial Business Unit Director at lntrum Justitia UK, comments: "The vicious circle of payment delay is continuing its negative effect on UK businesses. Companies at the end of the supply chain suffer the most. What is more disappointing is that only a handful of businesses (26 per cent) see any benefits in being punctual payers; it needs to be much greater than that if we are to tackle this continuing problem of deliberate late payment.

"On a positive note, compared with last year, payment risks in the UK have decreased slightly. Our findings show that payment duration reduced from 52.1 days in 2003 to 51.3 days in 2004. Payment loss in England has also improved. In 2004, UK businesses were losing 1.6 per cent of total revenue, a decrease of 0.3 per cent."

Looking further afield, Italy, Denmark, Sweden and Switzerland all showed an increase in payment risks, while 17 countries showed a decrease. The average payment duration across Europe in 2004 increased from 56.2 days to 57.4 days.

European Payment Index - Payment risks at a glance

An index value of 100 means that no payment risks exist. An index value of 101 to 124 points requires precautionary measures and controlling processes. From 125 points upwards, increasingly stringent measures are recommended to lower the risk profile.

For further information on the European Payment Index, visit www.intrum.co.uk