Fewer late paying companies, but no increase in bankruptcies yet

A recent survey about late payments casts light on businesses’ finances in Q3 2024.

According to a late payment survey by Intrum, the hospitality sector continues to face the most challenges, but the highest proportional rises in companies delaying payment have been in the public sector, defence and mining.

As a whole, the proportion of companies delaying payment has declined by 2.38% compared to last year and remained unchanged compared to Q2. A total of 18,408 companies were paying late, which was over 5% of Finnish companies.

Geographically, the highest number of companies delaying payment was in North Savo and North Karelia. 

“High inflation, interest rates and weaker demand are straining companies’ solvency,” Juha Iskala, Sales and Marketing Director at Intrum, says in the company’s press release.

Measured both in terms of headcount and turnover bracket, the proportion of companies delaying payment fell the most in the largest companies and the least among the smallest companies. In a challenging economy, small companies do not have the same financial buffers, which is why they find it harder to pay their bills.

“Our survey found that bad debts and late payments have decreased over the past three years. Nevertheless, 59% of small and medium-sized companies are more concerned than before about their customers’ abilities to pay on time. An unpaid bill causes problems not just for the invoicing company but also for the entire economy, as money doesn’t circulate normally,” Iskala says.

Bankruptcies still rising

Data from Statistics Finland show that bankruptcies have continued to rise, with last year’s rate significantly outstripped as of the end of August. Bankruptcies have risen for over two years. By August this year, over 2,000 companies had filed for bankruptcy.

“Usually, when the number of late payments continues to decline, the number of bankruptcies starts to decline. If big companies go under, it weakens the capabilities of subcontractor chains and increases bankruptcies.”

Iskala says that bankruptcies will continue to remain at a high level this autumn. This is because the positive turn in the economy will take some time to be seen in the real economy.

“Company’s glummer economic outlooks increase the risks of trading on credit. It would be worth businesses owners’ while to try to anticipate bad debts and to minimize the risk of them, which could help avoid a lot of bankruptcies. Real-time debt recovery information provides immediate signals about companies’ payment difficulties.”

The Intrum survey found that companies’ attitudes towards the future had improved slightly: 42% of executives said they did not have large concerns about their company’s cash flow in the future.

“If the ECB cuts interest rates again at the end of year, as forecast, companies could breathe a sigh of relief,” Iskala says.

Asiakastieto: Defaulting consumers on the increase

The Suomen Asiakastieto credit score company says the number of people with payment default records continued to grow in Q3. At the end of September, there were 365,500 such people. The number of consumers with payment default records has increased by 15,000 since the end of last year. Nevertheless, the rate of growth has declined slightly since the start of the year.

Of the debt-related court rulings made so far in 2024, 63% have been a result of unpaid overdrafts and personal and consumer loans. Asiakastieto says that the number of consumers with payment default records is at the same level as in December 2022, when the Credit Information Act was amended.

“When the amendments to the Credit Information Act came into force, 18,600 people were removed from the register. However, with time, these people would have been removed from the register anyway, as they’d already paid the debt at the basis of their defaults. In the light of the figures, it looks like the legal amendment hasn’t succeeded in reducing the number of over-indebted people. The lower number of people with default payment records last year now looks like a temporary blip: at the moment, the difference with the figures in late 2022 is only about a thousand,” say Mikko Karemo, Deputy CEO of Asiakastieto.

Problems in Credit Information Act

A Finnish resident with a default payment record has an average of 14 payment defaults. Karemo says that a person like this has serious financial problems.

“At present, the Credit Information Act can’t prevent initiated payment default spirals from getting worse. It might encourage people to pay off their debts, but it doesn’t support learning about responsible finances or working towards lasting change. The debt-related court rulings show that many people are taking on too much debt and getting payment defaults because of credit they shouldn’t have received based on their entire financial situation. Issuing credit on incomplete information isn’t in anyone’s interest, not companies’, not the consumer’s.”

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