Corporate cost-cutting at a four-year high despite growing economic optimism

Two in five (41%) businesses across Europe plan to cut costs in 2024, the highest level since 2021 according to the annual European Payment Report from Intrum, the credit management services provider which operates across 20 European markets.

The 27th edition of Intrum’s annual study assesses the fortunes of 9,255 companies across 25 European countries. It sheds light on the myriad of challenges they face after 18 months of economic headwinds.

After a recent period dominated by economic instability and the cost-of living crisis, economic conditions are improving in Europe, with inflation in March 2024 falling to 3.2% in the UK and 2.4% in the Eurozone.

The brighter outlook is starting to feed through to business confidence. Intrum’s research shows 31% of executives say their business has strengthened over the past 12 months, up from 24% in 2022. More than half (55%) even say their business has the opportunity to expand over the coming years.

Still, macroeconomic conditions continue to cast a long shadow. Three in five (61%) respondents do not expect interest rate reductions for at least another year, despite suggestions that the ECB may be ready to cut rates sooner.

To navigate this testing outlook, the percentage of firms planning cost-cutting measures has increased for a third successive year, from a low of 28% in 2021 to 41% now. More than one in three (34%) businesses are more likely to request longer payment terms from suppliers, or pay later than agreed. A further 15% of businesses say they will begin extending payment terms in 2024 to navigate the economic disruption and downturns.

At the same time, almost one in ten (8%) are looking to reduce the payment terms they offer their own clients or customers to help manage cashflow.

Across Europe, businesses in Spain (20%) are the most likely to ask suppliers for longer payment terms, closely followed by Italy (19%), Portugal (18%), France (17%) and Denmark (17%).

However, Intrum’s research highlights the negative impact of longer payment terms, or debtors simply not paying, as businesses spend significant time chasing down late payments.

Across Europe, the average business is losing more than a quarter of the working year– 73 working days – a year chasing late payments, channelling valuable time away from focusing on their core business, including growth and innovation.

European businesses are currently owed €10.5 trillion – 30% of total GDP and equivalent to the combined GDP of France, Germany and the UK– in outstanding payments from customers and creditors. Large businesses are owed €5.1m on average, while SMEs are each waiting on €448,000.

Looking at amounts owed by sector, organisations in government and the public sector have the biggest outstanding amounts (€5,135 million), followed by banking and financial services (€3,782 million) and insurance (€2,813 million ).

Andrés Rubio, President & CEO of Intrum, said, “It’s troubling to see that cost-saving challenges are piling up for thousands of businesses in 2024, to a greater extent than at any time in the last five years. Businesses having to cut costs and ask for longer payment terms from suppliers while insolvencies are increasing is a concerning trend.

It is understandable that executives are nervous in the aftermath of recent years’ challenging economic environment. We must help businesses to manage and recoup the money they are owed and encourage suppliers and customers to pay on time, to avoid putting growth on hold and necessitating cost cutting measures to survive the current headwinds.

Governments and industry alike must take steps to make sure that businesses are being supported and on time payments encouraged in order to avoid disrupting businesses’ cash flow and their ability to pay their debts. Without doing so, the problem only escalates and creates a cycle of unresolved credit commitments.”