Payment punctuality in Romania slightly increased / Average payment deadline was reduced compared to the previous year/ Level of bad debts and late payments remains the same as in 2016/ Temporary cash flow problems – the main reason for default payments/ Increase of companies who collaborate with external debt collection specialists/ Digitalisation of dunning process not seen as directly contributing to improvement of punctual payment.
In 2017 on time payment behaviour slightly increased compared to 2016. At the moment, 74% of invoices issued are being paid on time, which is equivalent to an increase of only 1 percetage point over the previous year. At the same time, companies have reduced their average payment terms for both their B2C and B2B clients.
These are some of the insights from the representative EOS Survey „European Payment Practices 2017”, in which independent market research institute Kantar TNS Infratest surveyed decision makers from 3200 companies from 16 European countries regarding local payment practices. The objective of the survey is to analyse the relationships between payment behaviour, payments terms and the influence of cash flows on Europe’s economy and society.
One reason for the slight increase in the Romanians’ payment punctuality may be the cut of the average payment term, from 39 days in 2016 to 37 days this year. At present, payment deadlines are shorter than in 2016: only 54% of B2B clients receive payment deadlines of at least 40 days, compared to 62% last year. „According to the results of our surveys in the past years, we got to the conclusion that short payment deadlines result in good payment behaviour.”, says Georg Kovacs, Managing Director of EOS KSI Romania.
With all this, despite its improvement in payment practice, Romania is still one of the Eastern European countries with the lowest number of receivables paid on time, next to Greece, Russia, Bulgaria and Slovakia.
Reasons for poor payment practices
In terms of bad debts, the level remains the same in the previous year – 4%, which has a negative impact on the Romanian economy. In comparison, the average level of bad debts for Eastern Europe is lower, namely 3%.
As well, the average value of late payments in Romania this year has remained at 23% – the same level as in 2016. Romanian companies consider that the main causes of inappropriate payment practice for B2B clients are outstanding payments from own customers (80%), as well as use of supplier credits (69%). Regarding B2C customers, they pay late or default in payment due to temporary cash-flow problems (75%) and forgetfulness (61%).
Consequences of poor payment practices
Even just one unpaid invoice leaves its mark on a company, let alone hundreds of thousands: for the companies involved these losses can in some cases run into the millions. As the EOS survey shows, due to the delays in the payment chain, Romanian companies are suffering mostly from profit setbacks (62%), cash flow problems (41%) and cutting back on investments (27%).
Moreover, the companies react to these kind of payment delays and defaults by cutting jobs and freezing recruitment (27%) and increase of prices (22%), which directly affects the local market. „Many people are not even aware of the consequences of late or unrecoverable payments”, states Georg Kovacs. „Debt collection often has a negative image among the general public. The role it plays in the economy is not very visible, altough this is something that the consumer benefits substantially from. Because the liquidity restored to a company as a result of debt recovery helps it to avoid increasing prices or cutting back jobs”.
Last but not least, 17% of the Romanian companies polled completely agreed that due to payments delays and defaults, they experienced treath to their survival, which made them feel vulnerable.
Effective use of receivables management
In Eastern Europe it is mainly Romanian companies that benefit from working with debt collection providers. Every year, collaboration with receivables management specialists returns a total of 13% of revenue to the companies.
Most Romanian companies use the payments recovered through receivables management for expanding business segments (35%), while 31% of the companies invest the money in creating new jobs and safeguarding existing jobs. This means that debt collection providers contribute to the stability of the job market. In addition, the resources recovered go into investment in the financial market (29%) and investment in research & development (26%).
In terms of collaboration with external debt collection providers, almost half of the Romanian companies surveyed manage their receivables internally and an average of 10% of the companies do not use a standardized receivable management process. However, in 2017 significantly more companies started to cooperate with service providers for their receivables management, compared to 2016.
„Outstanding payments are a risk to companies. Firms should work with debt collection specialists, as it enables them to focus on their core business, while their liquidity is safeguarded by professional receivables management”, says Georg Kovacs.
Future trends in payment practices
Looking to the future, Romanian companies tend to be less optimistic than last year and among the most sceptical countries in Eastern Europe about the expected trend in payment practices among customers. „This pessimism of the Romanian companies towards future is not surprising, due to the late political crisis which led to national economic instability”, considers Mr. Kovacs.
Digitisation of dunning process
Digital dunning means that companies set up and manage dunning processes to be customer-specific and highly automated, for example using big data analyses. Altough for the most part companies continue to use software to support the dunning process, staff are often still intervening in the process themselves. In Romania half of the companies surveyed consider themselves digitalised, however, only 14% have completely digitised arrears billing. This might explain why Romanian companies were the most sceptical in Eastern Europe when asked if payment delays could be reduced by having a digitised dunning process.
The EOS Survey ‘European Payment Practices’
In spring 2017, in cooperation with the independent market research organisation TNS Infratest, the EOS Group asked a total of 3,200 companies in 16 European countries about prevailing payment practices in their respective countries. 200 companies in each country (the Great Britain, Spain, France, Austria, Greece, Romania, Russia, Slovakia, Bulgaria, Poland, Hungary, Croatia, Belgium, Switzerland, Czech Republic and Germany) answered questions on aspects of their payment experiences, economic trends in their home country and risk and receivables management in general.