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