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June 03, 2013

Western European Business Profitability Takes a Hit Due to Higher Rates in Payment Defaults



There is something looming on the horizon that is preventing businesses from maintaining sustainable profitability. One that is likely as important as the falling demand for products and services is a payment default. The payment default rate in Western Europe is rising, according to the Atradius Payment Practices Barometer, to 5 percent of the total value of all B2B receivables. This number is a result from a survey that Atradius, a commercial credit risk management company, recently conducted. It reflects the proportion of defaults and late payments for invoices.

The survey by Atradius had 3,000 business participants in 14 countries of Western Europe. Around 30 percent of all the invoices issued by the respondents were not paid at their due dates. The countries with the most impact were Italy (36.8 percent of total value of domestic overdue B2B invoices) and Switzerland (38.7 percent of export customers).

If we compare this year's data to last year's, domestic overdue invoices decreased about 1.6 percent, while the foreign equivalent rose by 6.7 percent. France had the largest spike in average total value of domestic overdue invoices (14.2 percent), while Turkey experienced an even more alarming increase in its foreign overdue invoices (194.4 percent).

As far as defaults are concerned, domestic and foreign B2B customers default on 5 percent of their invoices, which is a significant increase from 3 percent last year. Italy again suffers the most from domestic customers (7.6 percent of total value). Switzerland again comes in second, with a 7-percent rate of defaults from foreign B2B customers. The main reason why customers default on their invoices is because of bankruptcy or going out of business.

The survey defines a “default” as an invoice that has not been paid within at least a 90-day period. Atradius' survey also shows that the primary reason for B2B customers to delay their payments is an inability to come up with the funds to do so. 62.3 percent of respondents said that this was the primary reason why domestic customers do not pay. 45.9 percent of respondents have replied that this was the primary reason for foreign delays in payment.




Edited by Alice Koganova
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