In 2007 the European business community missed out on a record amount of EUR 250bn as a consequence of outstanding invoices. Southern Europe heads the league of payment defaulters, while the Nordic countries are the best payers overall.

These figures are shown in the latest annual European Payment Index assessing payment behaviour in 25 countries, including most of the EU member states. The Index is compiled by Intrum Justitia, the largest European credit management services provider.

Intrum Justitia fears that the European sum of outstanding invoices will continue to increase in response to the credit crunch and the high food and oil prices.

"This is a worrying development. The poor payment behaviour has a strong inhibiting effect on the development of the European economy", says Michael Wolf, President and CEO of Intrum Justitia.

Not only the total sum of outstanding invoices rose to record heights. The percentage of unpaid invoices was also at its highest level ever (2%, compared to 1.9% in 2007). The average number of days before an invoice was paid in Europe rose to 55.5 – almost 4 weeks too late.

Once more European governments proved to be the worst payers, taking an average of 65 days to pay an invoice. The corresponding figure is 55 days for the business community and 40 days for the consumer.

Inadequate routines

The most important reasons for non payment or late payment lie in inadequate routines and lack of competence of the business community itself when collecting payments.

Michael Wolf explains that, "Businesses are allowing themselves to be blinded by the good economic situation of the past years. They are doing well and making good profits. In addition they find it awkward to address their customers on the subject of their payment behaviour. They have lost sight of the fact that the banks are responding to the credit crunch by becoming more difficult and expensive when it comes to providing loans. This really has to change."

Higher risk in Southern Europe

Greece, Cyprus and Portugal are the countries where invoices wait longest to be paid, while the Scandinavian countries pose the smallest risk. Intrum Justitia finds that it is absolutely crucial for the business community to take a much stronger line on implementing credit management.

One can see the emergence of a vicious circle, in which the large businesses are the first to start to pay more slowly, according to Intrum Justitia. Smaller businesses are forced to follow suit. This has dramatic effects on economic development; forward propulsion is lost because investments are postponed. Company cash is 'frozen' in unpaid invoices and borrowing from banks continues to be difficult and costly.

"All of this can be avoided by good credit management", says Michael Wolf.