Obstacles for businesses around the world are mounting – economies are grappling with rising inflation and interest rates as the ripple effects of the global pandemic and Russia-Ukraine war are felt across the world.

UK businesses are especially feeling the pressure, with fears of a surge in late payments and economists expressing concern that the economy could fall into a state of stagflation – where inflation is rising quickly with little to no growth. Across Europe, growth is also slowing while supply-chain disruption and soaring energy costs are driving inflation at rates not seen for decades.

About six in 10 companies say they are worried that the risk of late payments will grow this year, according to Intrum’s annual European Payment Report 2022, which surveyed 11,000 companies across 29 European countries.

Late payments a significant barrier to growth

A third of respondents say that late payments are prohibiting growth of the company, hampering the economic and social development of the economy, suggests Intrum.

Two out of three businesses say faster payments from their customers would help them improve their sustainability performance, and six out of 10 say it would help them grow by allowing them to expand their products and services.

Eddie Nott, MD for Intrum UK, says that more than half of businesses expect late payments to jump this year, but “a similar proportion say they do not have the in-house expertise needed to successfully manage the impact of inflation on their business”.

Meanwhile, respondents admit they are struggling to manage the impact of inflation on their businesses, with more than half of UK businesses saying it is inhibiting growth (51%), stopping them from meeting wage demands (57%), and preventing them from paying suppliers on time (60%).

“UK businesses are battening down the hatches and are less likely to prioritise growth than their European peers,” said Nott.

Also, almost six in 10 businesses say they are more cautious with their borrowing and spending plans, as they expect interest rates to rise more than once during the next 12 months.

“Concerns are rising as inflation is accelerating and growth is flattening. If this trend is not broken, we could be facing a period of stagflation – contracting economic output combined with high inflation,” says Anna Zabrodzka-Averianov, Senior Economist at Intrum. “On a positive note, labour markets across Europe have continued to strengthen this year, although low unemployment rates could lead to further upward pressure on wages.”

Strengthening cash flow and managing credit risk

ICAEW’s Head of Business, Simon Gray, says cash flow and working capital management remain top business priorities, according to feedback from ICAEW members. “With economic pressures mounting on businesses across multiple sectors, I expect to hear more on this as we move into the second half of the year.” 

It’s a sentiment reiterated in the Intrum report: eight in 10 UK companies said that improving credit risk management is a strategic priority for the year. A similar proportion cite strengthening liquidity and cash flow and reassessing contracts with core suppliers and partners as top priorities.

Half of the businesses surveyed report that they are financially weaker now than before the outbreak of the pandemic. At the same time, more than six in 10 say that the pandemic has motivated them to become better in managing risks related to late payments.

Gray adds: “Due diligence on new customers and regular communication with existing will be critical. As price increases ripple across supply chains and the potential for a downturn in consumer discretionary spending looms, staying close to customers and effective cost control will be of increasing importance.”

• Read the full European Payment Report 2022