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Liquidity squeeze as Portugal bad debt escalates to over €6b

By ANA TAVARES – [email protected]

Bad debt in Portugal currently represents more than €6 billion, an increase of 13% on the previous year according to a report by credit management services company Intrum Justitia.

The figure represents 3.6% of the total volume of business of Portuguese companies between January and March 2012. In Europe, uncollectable debt has reached 2.8% of the total volume of business, standing at €340 billion, over twice the budget of the European Union for 2012, said the report which the Algarve Resident had access to.

The study, “European Payments Index”, which involved 7,800 companies in 28 European countries, 1,000 of which in Portugal, also shows that the rise of bad debt nationally was caused by the increase in lack of liquidity.

In fact, 81% of Portuguese companies claimed to have liquidity problems in the first quarter of the year due to default payments, a 4% growth compared to 2011. In Greece, this figure reached a staggering 96%, causing the Mediterranean country to occupy first place, alongside Portugal in the ranking of countries that face higher risks due to late payments.

On a scale of 100 to 200, Portugal features a score of 190 in the first quarter of 2012, the worst results in the past five years, which, according to the study, imply the need for urgent intervention and immediate measures to lower the risk level.

The European average is of 163, with countries such as Finland (126), Sweden (129) and Norway (130) getting the best scores.

The eighth edition of the study also highlights the diverse financial landscape in Europe: whilst Germany and the Scandinavian countries are performing well despite the recession – bad debt dropped 16% in Finland and 10% in Denmark, Norway and Sweden –  southern and eastern European countries are struggling to collect their debts.

Bad debt increased by 20% in Greece to 5.9%, and Poland and Hungary have seen an increase of 14% and 17%, respectively. The third largest European economy, the UK, is also experiencing a negative trend as bad debt went from 3.2% to 3.5%, an increase of over 9% compared to 2011.

Also, although Portuguese companies are getting paid sooner (on the business-to-business front, companies are now allowing 51 days instead of 50 days to get paid), payments are still on average 40 days behind in 2012. This figure goes down to 30 days in the business-to-client sector and up to a staggering 79 days when it comes to public entities. When questioned regarding the reasons behind the late payment, 96% of Portuguese financial directors replied it was due to the customers’ own financial difficulties.

“Companies in Europe have entered a vicious cycle. On the one hand, they are trying to pay their debt as late as possible and, on the other hand, are trying to collect their debt as soon as possible,” said Luis Salvaterra, general manager of Intrum Justitia Portugal.

Another distinctive fact is that Portuguese companies show higher levels of distrust regarding the banks’ ability to support them through recession – 85% compared to the European average of 47%.