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European Companies Write Off Half A Trillion Dollars Due To "Culture Of Late Payment"

Tyler Durden's picture




 

40% of European firms say the severity of late-payment problems were preventing them from hiring as "even when the public sector pays promptly, the money doesn't sloosh down the system promptly because of the culture of late payment." As the FT reports, small and medium-sized enterprises are the hardest hit by late-payment consequences with nearly three-quarters saying nothing has changed in the last few months and in fact nearly half saying the problem is getting worse. "The late payment consequences for businesses pose a real threat to Europe’s competitiveness and social wellbeing," warns one analyst, as "companies are deliberately not sticking to the provisions of the EU directive as a way of managing their cash flow." The reason - of course - the unintended consequences of policy-makers centrally planned efforts to ensure nothing bad ever befalls an important firm/nation ever again - "It's a way of borrowing off smaller companies – and they should be held to account."

 

As The FT reports,

The debt written off by Europe’s companies due to late payment or non-payment of bills has swelled to €360bn despite the pick-up in economic activity in the region.

 

“The late payment consequences for businesses pose a real threat to Europe’s competitiveness and social wellbeing,” said Lars Wollung, president of Intrum Justitia, a credit management group. “Hardest hit by the problem . . . are small and medium enterprises.”

And it's not getting any better...

Nearly three-quarters of the companies taking part in the research said that there had been no improvement in the late payments problem in the past three months despite the economic pick-up, and 46 per cent believed late and non-payment risks were actually increasing.

 

“Even when the public sector pays promptly, the money doesn’t sloosh down the system promptly because of the culture of late payment,”

 

Forty per cent of the companies which took part in the EPI research said the severity of late payment problems was preventing them from hiring staff.

Of course, it's the smaller business that suffers as the trickle-down of government intervention suckles large enterprise and they squeeze small business...

Suppliers are often unwilling to go public about late payment problems for fear of jeopardising relationships with their most important customers.

 

...

 

A 2011 EU directive, which has been adopted by 27 out of the 28 member states, sets limits on how long public and private sector companies can keep their suppliers waiting – 30 and 60 days respectively.

 

Although the directive has been adopted by the UK government, that does not mean large companies stick to its provisions. UK retailer Marks and Spencer, for example, changed its supplier terms last September to extend its window of payment from 60 to 75 days.

 

“Companies are deliberately not sticking to the provisions of the EU directive as a way of managing their cash flow,” said Mr Fisher. “It’s a way of borrowing off smaller companies – and they should be held to account.”

But then again - so what - there appears no consequences anyway...

 

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Mon, 05/12/2014 - 15:11 | 4751785 ebworthen
ebworthen's picture

Moral Hazard.

If the public treasury is used to bail out banks and large corporations, what did they expect to happen?

The "trickle down" is people asking themselves why they should pay their bills if banks/insurers/corporations don't?

Mon, 05/12/2014 - 15:17 | 4751812 Ghordius
Ghordius's picture

it's mostly small businesses, mind. and often they are literally...people

Mon, 05/12/2014 - 15:43 | 4751943 ebworthen
ebworthen's picture

Right.  Part of the "genius" of bailouts and QE; it consolidates profits and power.

Part of killing the middle class is killing small business.

Mon, 05/12/2014 - 15:13 | 4751787 NoWayJose
NoWayJose's picture

They already did this in California when they ran out of money.  It won't be long until all of the EU countries, the US and Japan will start paying their debts and promises 'late' as well.  Then, just as those EU companies are finding out - the real hope is that you DO get paid late, because the alternative is NOT getting paid at all.

Mon, 05/12/2014 - 15:14 | 4751795 orangegeek
orangegeek's picture

why bother paying at all?  just take like the government does.  the government will protect you if you do.

Mon, 05/12/2014 - 15:31 | 4751882 foodstampbarry
foodstampbarry's picture

Why do I have to make my car payment? Fuck it, I'm joining the FSA. I'm the only dumb fuck at walmart standing in line paying for my groceries with my visa card. Fuck this shit, I ain't paying anymore.

Mon, 05/12/2014 - 15:33 | 4751891 Anusocracy
Anusocracy's picture

Good point.

The government commandeers your money, why doesn't it just commandeer anything it wants? From each according to his ability, to the government according to its need.

Mon, 05/12/2014 - 15:20 | 4751800 Ghordius
Ghordius's picture

see how EU directives really work? in doubt, members don't follow them

members are, after all, armed sovereigns, like the UK in this one (this does not prevent MPs to pretend otherwise)

yes, this thing about payments of SMEs has tradition, too, last seen big way in the 70's. support for small business. debatable...

Mon, 05/12/2014 - 15:18 | 4751815 withglee
withglee's picture

When did contractural credit terms go away? Seemed 1%/10 net 30 were pretty standard. Deadbeats were COD.

Mon, 05/12/2014 - 15:24 | 4751850 NoDebt
NoDebt's picture

I was wondering that, too.  Ah, laws.  We are busy circumventing entire Constitutional Amendments in the US, so what's the big deal shaving the edges off a few insignificant contract laws?

(FYI- Deadbeats were always pay-in-advance with me.  COD was normal.  Only the good guys got terms.)

Mon, 05/12/2014 - 15:34 | 4751898 Bill of Rights
Bill of Rights's picture

From where I sit, the hard core Dead beats wear suit and ties. The collection agencys prey on the low info dead beats cause they panic when they're thretend over the phone and pay up, where as the Suit and Tie dead beats just laugh and blame the other guy.

 

Bottom line never admit you owe anything, let them prove it, and even when they do  call them out as liars. But never I repeat never admit you owe.

Mon, 05/12/2014 - 19:11 | 4752659 Ruger556
Ruger556's picture

Yes, most CC companies, especially if you filled out an online application, cannot prove you agreed to anything. If you stop paying and get sued, there are attorney's who will work for 25% of the balance and almost guarantee you a win.  You ask BOA/Discover/Amex to produce a signed agreement, they can't.  Even 40-50K is small potatoes to these guys.. They know they will easily spend 20K if they decide to sue, mean while the attorneys that defend you have a form where they change a few items in a word doc and file on your behalf. 

 

Collection agencies buy debt at 5 cents on the dollar, then they send you a discount to pay 1/2 the balance.   Always use the language, "I don't recall owing that". Once you start to negioate it is like a defacto admission of the debt.  And for Pete's sake, never sign anything they send you in the mail.

Mon, 05/12/2014 - 15:36 | 4751916 centerline
centerline's picture

Has slowly devolved in most industries to a net 60+ it seems.

Mon, 05/12/2014 - 15:19 | 4751820 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

And how many of these suppliers are holding up payments due to certain commodities they need that are warehoused by certain entities?

Mon, 05/12/2014 - 15:21 | 4751831 NoDebt
NoDebt's picture

You know, if those small businesses submitted invoices for goods not delivered yet, somebody would probably pay it (late, of course, but they'd pay it).  Governments generally have no idea what they owe or to whom.

Mon, 05/12/2014 - 15:36 | 4751912 Winston Churchill
Winston Churchill's picture

Especially at Govt. years ends.
I sometimes got paid twice for the same invoice because they demanded I invoice before delivery.
Sometimes I refunded it unasked, others I waited to see if they caught it.

Mon, 05/12/2014 - 15:44 | 4751950 NoDebt
NoDebt's picture

Keep it.  Worst they can do is make you give it back.

Mon, 05/12/2014 - 16:06 | 4752056 Winston Churchill
Winston Churchill's picture

I did , they only caught about 50% of the over payments.
I was paying over $150k pa(thirty years ago) property taxes
on my factory , so I figured they got it back anyway one way
or another.

Mon, 05/12/2014 - 15:23 | 4751833 semperfi
semperfi's picture

WTF?!   You mean that after all the hassle and work I had to go thru to get a loan, that I have to pay it back?  Bullshit!  They should be thankful that I just borrowed the money and kept them in business - ungrateful motherfucking bankers.

Mon, 05/12/2014 - 15:22 | 4751839 Agent P
Agent P's picture

You don't even know what a write-off is. 

Mon, 05/12/2014 - 15:24 | 4751842 Bill of Rights
Bill of Rights's picture

Been saying this for years now, since the bubble bursting in 05, why anyone continues to pay their mortgage, credit cards and so on is beyond logic, all your doing it bailing out the bailed out.

This is exactly what the US needs one massive go fuck yourself on a major scale. Stop paying.

 

" He gave us a Phone, he's gonna do more "

Mon, 05/12/2014 - 19:02 | 4752631 Ruger556
Ruger556's picture

Bill, you are right, and if it weren't for our conscious, many people would stop paying.  Many were brought up you pay your bills.  But since WALL ST and BIG BANKS were bailed out at our expense my thinking has changed. The way I figure, hey, they are already getting paid by me, so why pay.  I guarantee you, the younger generations will not be paying that student loan debt, and they really don't care.  It's gonna hit all at once.. and it gonna be ugly

Mon, 05/12/2014 - 15:25 | 4751852 ElixirMixer
ElixirMixer's picture

Getting companies (including the company I work for) to pay on time has in the past year quickly become one of the biggest wastes of my time. 

Mon, 05/12/2014 - 15:27 | 4751860 NoDebt
NoDebt's picture

#fuckyoupayme

Mon, 05/12/2014 - 15:40 | 4751888 Chief Wonder Bread
Chief Wonder Bread's picture

I don't get it. What does all this have to do with prices of stock indexes?

Mon, 05/12/2014 - 15:33 | 4751889 centerline
centerline's picture

You can almost hear the velocity of money grinding to a halt.  Which will trigger the next desperate move.  Vicous cycle, bitches.

Mon, 05/12/2014 - 15:36 | 4751908 Atomizer
Mon, 05/12/2014 - 15:55 | 4751987 ebworthen
ebworthen's picture

Good one, thanks.

DEVO - "Don't Shoot (I'm a Man)": 

http://www.youtube.com/watch?v=cKxhlXZ3hcY&feature=kp

Mon, 05/12/2014 - 15:47 | 4751961 giggler321
giggler321's picture

Speaking from the UK, my other half's work is going through the same thing.  A contractor firm, esb. over 60+years, most of their competitors are pricing jobs at a loss in the hope it'll get better soon.  They held back payments for everything between mid-April to start of May simply to make their books look better to get further loans.  Even I.T. people would not help with their servers when they had a power cut because they were on stop.  The banks see over 400K of outstanding unpaid bills and are reluctant to allow more borrowing.  The clients have clauses if they are not happy with the work they can claim to hold back a percentage until it is settled and this makes up most of the outstanding uncollected payments.  Not that they have not done the work properly but if someone does not want to pay up it is easier to say there is a problem with the work and delay final payment.  They have sold off some plant machiney in order to get running cash.  While the wealthy farmer who owns it could probably keep them going, management meetings are an increasingly tricky debate.

The point is, until I saw this topic, I figured it was just their line of work.  Some people have been their since dot and don't remember it ever being this bad.  Last year they asked some of their long standing employees to leave to save them having redundancys, first time in history of company.  I wonder how much of this is mirrored?

Mon, 05/12/2014 - 16:05 | 4752028 Joe A
Joe A's picture

The biggest slackers in paying up to companies are government institutions, not the private sector itself.

Mon, 05/12/2014 - 16:44 | 4752197 chinaboy
chinaboy's picture

Rule of law becomes 'rule of late/no payment'. The European economy is recovering to hell.

Mon, 05/12/2014 - 16:42 | 4752200 starman
starman's picture

no shit!

 

Mon, 05/12/2014 - 18:19 | 4752520 dondattabiggy
dondattabiggy's picture

The run up in food the past year is 2014's answer to 2008's oil run up. We're already seeing demand destruction in my business - guys going hand to mouth knowing next week will be cheaper than this week. 

Of course prices will remain sticky for the end user and continue the economic fuckery for the "middle class". 

Mon, 05/12/2014 - 18:29 | 4752540 Otto Zitte
Otto Zitte's picture

Where I grew up if you borrowed from the lender of last resort and couldn't pay, two guys came to your house and worked out a payment plan. If you failed to make your payments they came back and made an example out of you.

People lived within their means and helped one another.

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