Bankruptcy surge looms despite fewer business payment delays

A recent study from Intrum indicates that while the number of businesses experiencing payment delays has slightly decreased compared to last year, the wave of bankruptcies is expected to persist through the fall. The accommodation and food service se

By: helsinkitimes.fi

Oct 09 2024
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Bankruptcy surge looms despite

A recent study from Intrum indicates that while the number of businesses experiencing payment delays has slightly decreased compared to last year, the wave of bankruptcies is expected to persist through the fall. The accommodation and food service sectors remain among the hardest hit, but public administration, defense, and mining industries have seen the steepest rise in payment delays. Regionally, the highest concentration of businesses facing financial difficulties is in Northern Savonia and North Karelia.

According to the report covering the third quarter of 2024, the percentage of companies with payment delays dropped by 2.38% compared to the same period last year, and has remained stable compared to the second quarter. Around 18,408 businesses—over 5% of all Finnish companies—reported payment delays. This reduction in delays is likely due to a slowdown in overall economic activity, despite a noticeable drop in interest rates during the quarter, which has not yet translated into improved business performance.

Public Sector and Mining Struggling with Payment Delays

While the accommodation and food service industries continue to face significant challenges, the most concerning rise in payment delays has occurred in the public administration, defense, and mining sectors. Other industries, including water supply, agriculture, forestry, and fishing, as well as finance and professional services, have also seen an increase in delayed payments.

“High inflation, rising interest rates, and weakening demand have all contributed to declining business liquidity,” said Juha Iskala, Chief Commercial Officer at Intrum.

On a regional level, businesses in Northern Savonia and North Karelia have been hit hardest by payment issues. Southern Savonia, Kymenlaakso, Southern Ostrobothnia, Kainuu, and Ostrobothnia have also seen slight increases in delayed payments compared to last year.

Small Businesses Hit Harder

The report also highlighted that larger companies have seen the biggest reduction in payment delays, while smaller businesses continue to struggle. Lacking the financial buffers of larger corporations, small businesses find it harder to cope with their financial obligations during tough economic times.

“While credit losses and payment delays have decreased over the last three years, 59% of small and medium-sized businesses are now more concerned about their customers’ ability to pay on time. Unpaid invoices not only affect the invoicing company but also disrupt the broader economy,” Iskala noted.

Bankruptcies Remain a Growing Concern

Despite a decline in payment delays, bankruptcies continue to rise, outpacing last year’s figures by the end of August. According to Statistics Finland, bankruptcies have been increasing for over two years, with more than 2,000 companies filing for bankruptcy by August 2024.

While the economic environment may improve with falling interest rates, companies are still grappling with reduced private consumption, low demand, and economic uncertainty. Iskala pointed out that "typically, when payment delays decrease, bankruptcies also follow suit, but this takes time. Large company failures can severely disrupt supply chains, leading to even more bankruptcies."

High interest rates, inflation, and declining demand are the main factors driving this continued wave of bankruptcies.

“The bankruptcy rate will remain high this fall, as any positive economic shift takes time to trickle down into the real economy. Entrepreneurs should proactively assess credit risks to minimize losses, as many bankruptcies can be avoided with proper planning,” Iskala advised.

Is the Economy Poised for Growth by Year-End?

Despite the challenges, there are cautious signs of optimism for the Finnish economy. While growth remains sluggish compared to other parts of the Eurozone, there are indications that the worst of the downturn may be over, with businesses hoping for modest growth in the final quarter of the year.

Consumer purchasing power has improved due to falling inflation and lower interest rates, but the weakening job market continues to dampen consumer confidence. The Bank of Finland predicts a modest economic growth of 1.1% in 2025, after a slow end to 2024.

“Our research shows that businesses are cautiously optimistic about the future, with 42% of business leaders expressing confidence in their cash flow going forward. However, risks remain, especially as geopolitical tensions and economic concerns in Europe could impact export demand,” said Iskala.

Intrum’s next report on business payment delays will be released in December, providing further insight into the financial health of Finnish companies.