European companies wrote off a record €350bn in bad debt last year, more than the annual GDP of Austria, Denmark or Finland.

May 12, 2013 11:03 pm

European groups write off record €350bn in bad debt

By Richard Milne, Nordic Correspondent

European companies wrote off a record €350bn in bad debt last year, more than the annual GDP of Austria, Denmark or Finland.

The amount of write offs increased 7 per cent in the past year and 27 out of the 31 countries surveyed by Intrum Justitia, a Swedish credit management company, saw either a worsening in credit conditions, or no change. The debt amounts to 3 per cent of all outstanding invoices in European companies.

“It is the highest level of bad debt losses so far, and the forecast is bleak. Three per cent of all receivables; think of the net profit margin of companies in Europe and that is a big part of it,” Lars Wollung, Intrum Justitia’s chief executive, told the Financial Times.Nordic countries represent a small bright spot, with all apart from Norway reporting lower bad debt losses than last year.

But while German companies had stable write-offs, they have grown increasingly pessimistic about the future with about a third of all businesses responding to the survey saying that they expected an increase in payment risk in the coming year.

“Companies are becoming much more worried in Germany than a year ago. The risk is that this determines their behaviour and the investments they take,” Mr Wollung said.

He now splits the continent’s companies into three groups – the virtuous in the Nordic region, those suffering in the south of Europe, and a new group caught somewhere in the middle consisting of the likes of France, the Netherlands and Belgium. “What is interesting is the polarisation of Europe, and we see how that polarisation has been magnified,” he added.

Small companies also suffer more than their larger counterparts. Companies with more than 2,500 workers wrote off only 1.5 per cent of their debt last year; those with fewer than 19 lost 4.3 per cent and those with 20-49 staff lost 3.6 per cent.

“The smaller companies have to write off more than the big ones and that means suppliers become more and more a bank for larger companies,” Mr Wollung said.

That is a worry for the European economy, which relies more on small companies than other regions of the world such as the US.

One positive trend to come out of the survey – produced for more than a decade from responses of nearly 10,000 companies across the continent – was that the amount of time businesses take to get paid has come down for the second consecutive year.

Businesses now get paid in 49 days, against an average of 56 days in 2008-11.

The countries with the highest payment risk last year were Greece, Croatia, Portugal and Bulgaria while those with the lowest were Finland, Sweden and Norway.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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