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PAYMENT HABITS
An EOS survey has been investigating the evolution of receivables management in Europe over the past ten years. The good news: Payment behaviour has improved during this time. The not-so-good news: This trend will not continue. In any case, debt collection can significantly enhance liquidity for companies.

EOS Survey ‘European Payment Practices’ 2017:
Debt management as economic driver

Invoices paid late or not at all are a business risk for companies worldwide. The effect of payment behaviour on the company and therefore on the economy should not be underestimated. The survey ‘European Payment Practices’ shows the status quo in Europe. Conducted by Kantar TNS on behalf of

Europe

A positive trend over the past ten years

A welcome development in Europe: Almost every third company reports that the payment behaviour of its customers has improved over the past ten years. Companies particularly in Poland, Croatia and Germany see this change in payment behaviour as very positive. On the other hand, companies in Greece, Britain, Bulgaria and Hungary see a negative trend.

This is demonstrated by the EOS Survey ‘European Payment Practices’ 2007–2017 which EOS compiled for the tenth time this year in collaboration with well-known market research institutes. More than 22,000 phone interviews with decision-makers in the field of receiv­ables management were incorporated into this analysis. ‘This in-depth body of data enables reliable assessments to be made for instance about the links between payment terms and payment behaviour in Europe’, says Klaus Engberding, Chairman of the EOS Group’s Board of Directors.

All in all adherence to payment schedules is improving. In 2017 about 78 per cent of customers are paying invoices on time. This is three percentage points more than in 2014 (see chart above).

Customers were increasingly paying on time How high is the proportion of receivables that are paid on time? How will the payment behaviour of your customers change in the next two years? <p class='small c_grey-lll'>Source: EOS Survey ‘European Payment Practices’ 2007–2017; n = 4.027/3.812/3.719/3.409 (2017/2016/2015/2014); before 2014 only the trend</p>
Customers were increasingly paying on time

How high is the proportion of receivables that are paid on time? How will the payment behaviour of your customers change in the next two years?

Source: EOS Survey ‘European Payment Practices’ 2007–2017; n = 4.027/3.812/3.719/3.409 (2017/2016/2015/2014); before 2014 only the trend

Less optimism for the future

However, participants in the study were more sceptical about the future. 77 per cent of respondents expect that there will be no further im­provement in payment behaviour in the future. Of the respondents, Eastern European companies (76 per cent) are less pessimistic than Western European companies (80 per cent). Out of this total of 77 per cent, 18 per cent assume that customers’ payment performance will deteriorate.

On average, Western European companies have kept their payment terms unchanged at 33 days in 2017, whilst Eastern Euro­pean companies have reduced payment terms by one day to 37 days. ‘However, if payment terms are extended in coming years, I expect that payment behaviour will decline. The reason is that in general the proportion of prompt ­payments drops as a result’, says Mr Engberding.

Europe

Debt collection as an engine for growth for the economy

Professional receivables management creates liquidity which is important for the business cycle. The respondents in the EOS survey indicate that on average they were able to collect about eight per cent of their revenue through collaboration with service providers. In Western Europe, German (eight per cent of their sales) and French (seven per cent) companies classified the financial benefit as particularly important.

In Eastern Europe, Romanian (13 per cent), Croatian (12 per cent) and Czech (11 per cent) companies particularly profited from cooperation with external debt collection specialists. ‘European companies clearly benefit from collaboration with debt collection specialists. Service providers strengthen companies’ cash flow while leaving the companies able to concentrate on their core business’, says Mr Engberding in summarising.

The improved cash flow not only strengthens the individual companies but also prevents a domino effect of payment defaults. ‘When a customer defaults on payment, companies’ first step is professional debt collection. The customer’s inability to pay is the main reason for a company’s own late payments. In all the countries that were surveyed, companies primarily used the liquidity that they recovered as a means of settling their own payment obligations’, Mr Engberding explains.

Companies also used the liquidity which they obtained to create and secure jobs, to expand and to invest in research and development. ‘This is how debt collection becomes an economic driver’, says the Chairman of the Board of Directors.

Increased liquidity for the business cycle Professional receivables management strengthens cash flow and the economic capability of companies. 41 per cent of survey participants attributed part of their revenue to debt collection. <p class='small c_grey-lll'>Source: EOS Survey ‘European Payment Practices’ 2017 n = 3,200</p>
Increased liquidity for the business cycle

Professional receivables management strengthens cash flow and the economic capability of companies. 41 per cent of survey participants attributed part of their revenue to debt collection.

Source: EOS Survey ‘European Payment Practices’ 2017 n = 3,200

What is the development of European payment habits?Ulrike Zajicek, Senior Marketing Consultant, talks about future trends

RESEARCH ON RECEIVABLES MANAGEMENT

SURVEYS
EOS research confirms the growing trend toward outsourcing in Bulgaria and shows the challenges posed by debt collection for US American hospitals.

Bulgaria

Further increase in debt sales

Bulgarian creditors are strengthening their focus on the sale of B2C receivables. In 2016, the volume of these portfolios rose to a total of 460 million euros, according to a recent survey by EOS Matrix and 15 other members of the Association of the Collection Agencies in Bulgaria (ACABG). At the same time, companies passed fewer B2C receivables on to debt collection specialists for fiduciary processing. Their volume decreased in 2016 by 15 per cent from the previous year. ‘Due to the higher volume of receivables sold, fewer cases are going to fiduciary collection’, explains Rayna Mitkova-Todorova, Managing Director of EOS Matrix in Bulgaria and President of the ACABG.

More B2C receivables sold In Bulgaria, the volume of non-performing receiv­ables from private households sold to debt collection companies grew by about 100 per cent in 2016 compared to the previous year.  Volume of B2C receivables sold, in thousands of euros<p class='small c_grey-lll'>Source: Association of Bulgarian Debt Collection Agencies (ACABG); 2017; n = 16</p>
More B2C receivables sold

In Bulgaria, the volume of non-performing receiv­ables from private households sold to debt collection companies grew by about 100 per cent in 2016 compared to the previous year. Volume of B2C receivables sold, in thousands of euros

Source: Association of Bulgarian Debt Collection Agencies (ACABG); 2017; n = 16

By contrast, the number of outsourced fiduciary cases in the field of B2B receivables rose considerably. In 2016, Bulgarian companies transferred business customer receivables worth 75 million euros to service providers – 66 per cent more than in the previous year. ‘This trend proves that trust in the debt collection industry is growing at a noticeable rate’, says Ms Mitkova-Todorova.

USA

Hospital budgets under pressure

Adeterioration in payment behaviour is subjecting the budgets of Ameri­can hospitals to increasing pressure. This became evident in a survey conducted by EOS Healthcare in the United States among 166 experts who were drawn from hospitals with more than 250 beds. Over half of the interviewees registered an increase in bad debts and write-offs.

Requirements for debt purchasers In your opinion what conditions would a receivables purchaser have to meet?<p class='small c_grey-lll'>Source: EOS USA ‘Debt Purchase Trends Survey’ 2017; n = 78; For computational reasons, the chart contains rounding differences.</p>
Requirements for debt purchasers

In your opinion what conditions would a receivables purchaser have to meet?

Source: EOS USA ‘Debt Purchase Trends Survey’ 2017; n = 78; For computational reasons, the chart contains rounding differences.

To limit bad debts, 80 per cent of hospitals use the professional help of debt collection agencies. However, only just under nine per cent of partici­pants in the survey indicated that they had sold their receivables. ‘At the same time the research demonstrates that debt sales could help hospitals signifi­cantly improve their cash flow in the future. Just under 40 per cent of respondents indicated that they were open to the idea of selling receivables’, says Todd Van Meter, President of EOS Healthcare. They attach particular importance to service-providers with a compliance management system and who would not resell the receiv­ables (see chart). ‘Reputable debt collection specialists meet these client expectations’, says Mr Van Meter.