What businesses consider to be an uncollectable debt may not always be as clear cut as is the case when a customer is declared bankrupt…The lesson is that some businesses often write off their debts before they actually need to.
A recent survey of businesses across nine European countries has uncovered a considerable variation, by country, in the percentage of trade receivables that businesses write off as uncollectable.
The survey – the Atradius Payment Practices Barometer, published in May 2011 – collected information from Belgium, Denmark, France, Germany, Great Britain, Italy, the Netherlands, Spain and Sweden, and from businesses with annual turnovers from under €1 million to over €1 billion. Those businesses represent a cross section from 22 industries, including sectors as diverse as construction, pharmaceuticals, food & drink, financial services and steel & metals.
While, on average, the businesses surveyed wrote off almost 10% of trade receivables, when analysed by individual country, the picture was much more varied. For instance, the Danish and German businesses surveyed recorded around 4-6% as uncollectable, and the Dutch and Spanish even less. But Italian businesses reported that they would not be able to recover 18% of their trade debts, with Great Britain close behind that figure with 14% of domestic debts and 18% of foreign debts deemed to be unrecoverable.