Good debt management supports the growth of the European companies

Digital technologies are gaining ground, government support have prevented businesses from failing and despite the challenges, the companies are hungry for a new phase of growth. These conclusions are shown by the European Payment Report, which describes  the impact of overdue payments on businesses’ outlook, growth, and development in Europe. The survey was conducted among more than 11 000 small, medium and large companies from different sectors in 29 European countries and it was compiled  between 25 January and 16 April 2021. 

Half of the surveyed companies admitted that they are lucky to have survived 2020. In pursuit of better performance many of them have excelled through digitalisation of their business models and more robust credit management practices, which were successful. The European business has an optimistic view about the future, planning bold strategic initiatives as well as securing cash flow and liquidity.

The true impact of the pandemic on payment behavior to be seen in the future. According to the survey, many companies have never been so concerned about their debtors’ ability to pay. Although, 45% of business leaders are more positive about growth than they have been for many years and are embarking on major strategic initiatives. Among the small and medium companies 39% say that they have accelerated the digitalisation of their businesses due to Covid-19.

State aid in combination with businesses’ increasing reluctance to negotiate longer payment terms has supported liquidity over the past year. Two-thirds of the companies reported a significant risk of delay of the payment and increase of the overdue receivables, when government support is withdrawn, so the situation will become more challenging. 

The European Payment Report says that the European companies have not only survived due to government support and technology development. According to the survey, the business has adopted a more proactive approach to how they mitigate liquidity squeeze and the risk of late payments.Two-thirds of the small and medium sized companies say that the pandemic has encouraged them to improve in this area. For comparison – 46% of the large corporations share such behavior. In 2021 to date, there has been a 20 per cent drop from the previous year in companies that have accepted longer payment terms than they are comfortable with to maintain customer relationships.

Businesses see late payments as a societal issue, which should be reflected in new, pan-European legislation.

In the shadow of Covid-19, business executives do foresee uncertainty for several years to come. Around half of those who have seen their profits decline say it will be 2022 or 2023 until they see a return to business as normal. However, 73% of businesses across Europe expect the vaccine to have a positive impact on their performance during the second half of 2021. Compared to last year’s report, it is less about ensuring survival and more about enabling growth and hiring new employees.

For more than one-third of the respondents late payments are hindering growth. At the same time more than 70% say that faster payments would enable them to invest in improving their sustainability performance and pursue innovation. Generally, the report shows that economic recovery strongly depends on responsible payment, adequate debt management and transparency. Sustainable cash flows and long-term profitability are more important than ever to enable companies to grasp the significant growth potential that they see on the horizon, noted the author of the report.