If everyone paid on time, it would give an enormous boost to local, national and regional economies. Not only would 270 billion Euro (*) per annum in written-off receivables be saved, but Europe’s firms could also save at least 25 billion Euro by not having to chase slow payers. Chasing debtors consumes time and money. Apart from breaking a contract, bad debt also helps to drive up the price of goods and services. Research shows that if companies did not have to allocate costs to get pain or have to write off sums of money, they could lower prices, increase investments and improve margins.
* 2,4% of GDP EU27
Last week Intrum Justitia released their annual European Payment Index report where they expose some of the shadier parts of a downturn economy:
- Delay in getting payment beyond the agreed term has stretched from 17 days in 2009 to 19 days in 2009 (on average)
- Written-off percentage has increased from 1,9 percent in 2007 to 2 percent in 2008 to 2,4 percent in 2009
Furthermore the report notes that 7 of 10 respondents believe that settlement risks will increase further during the coming 12 months. Bad news for smaller suppliers no doubt, especially in times of hard to get credit. Still from a procurement angle the report offers some really good incentives to get initiatives rolling:
- 1 in 3 state administrative inefficiency as a reason for late payment
- 1 in 4 claim disputes regarding goods and services delivered
”Administrative inefficiencies” is of course just another way of saying that there is a need to automate the procure-to-pay process. And the claims dispute angle is as strong an argument internally as it is externally. Supplier want to get paid on time instead of spending time disputing what was ordered and how much it costs.
