LONDON European companies lost 350 billion euros ($450 billion) last year due to late or unpaid bills, underlining fears that small businesses expected to drive economic recovery are faltering in a prolonged recession.
The figure amounted to 3 percent of all receivables and was a 7 percent increase on 2012, when companies wrote off 340 billion euros, Swedish credit management services group Intrum Justitia's (IJ.ST) European Payment Index showed on Monday.
Against the backdrop of the economic downturn and restricted bank lending in Europe, experts fear that the mountain of unpaid bills will drive up insolvency and job losses, reduce cross-border trade and snuff out any recovery.
Late or non-payment for services has long been a problem for Europe's smaller companies, especially in businesses such as supermarkets, which are renowned for driving hard bargains and squeezing suppliers.
The Forum of Private Business (FPB), a British-based organization that supports small and medium enterprises, last year outed supermarket chain Sainsbury (SBRY.L) on its late payment "Hall of Shame" for stretching payment times to 75 days.
Pharmaceutical giant GlaxoSmithKline (GSK.L) received the honor in February for pushing the wait to be paid to up to 95 days.
"It is bad news for the recovery... If a company is a late payer to another then that second company presumably has cash flow issues of its own, which transmits around economy," said Philip Shaw, an economist with Investec.
"It may be that the index is highlighting the need for government action to try to prevent those contagion effects from taking hold," Shaw added.
The index, based on a survey of 9,800 companies in 29 countries in Europe, reflected the gap between economies in the north and those in the south.
Businesses in Greece, Cyprus, Hungary and Portugal were among the most at risk from the effects of late or unpaid bills, while Nordic nations, along with Germany, Switzerland and Austria, were least in danger.
However, Lars Wollung, president and chief executive of Intrum Justitia Group, a credit advisor, debt collector and financial services firm, said weaker confidence indicated a bleak outlook for the whole of Europe.
The payment index showed that even in Germany, some 30 percent of German businesses said they expected to face greater risks from late payment in 2013, a 33 percent leap compared to 21 percent from a year ago.
"If business society says it's going to be worse, they plan for it to be worse and if they plan for it to be worse it's going to turn into reality," Wollung said.
Already just under half of the businesses surveyed said they had cut back on investments in innovation and saw no organic growth in their business on the horizon.
"Both Germany and the Nordics are exporting to Europe so if most of Europe will have worse problems than today then it most likely will hit (those) countries in a substantial way," he said.
While the amount of money lost to bad debt has risen, the average time businesses waited to receive payment edged lower, the data showed.
The European Union's Late Payment Directive, which from March required that bills are settled within 30 days in the public sector and 60 days in the private, may have forced companies to pay their bills more quickly.
However, the directive does not do enough to address the power balance between big business and their smaller suppliers, said Robert Downes, a spokesman for the FPB.
"You have big business trying to renegotiate the terms of invoices anyway ... companies don't like to say no for fear of losing that lucrative contract," he said.
($1 = 0.7709 euros)
(Additional reporting by Kirstin Ridley; Editing by Giles Elgood)