Despite this, 52 per cent of Lithuanian companies believe that the potential economic crisis will have little impact on their operations, and 17 per cent think it will have no impact at all, so in this respect, the country’s companies are among the most optimistic in Europe. This data was revealed by the annual European Payment Report released by the international credit management company Intrum.
Late payments cause difficulties
According to the survey, most companies in Lithuania are faced with belated payments, and 59 per cent of companies state that they have had to set postponed payment due dates, so as to not spoil their relationships with clients. Forty-four per cent of companies did so in order to avoid bankruptcy, however, even with postponed payment deadlines, consumers, business clients and even public sector companies are late in making payments. Only a fifth of small and medium-sized enterprises, as well as 16 per cent of large companies, say that over the past 12 months, they have not experienced requests to postpone payment deadlines.
“The COVID-19 crisis has undoubtedly had a negative impact on payments discipline in Lithuania, and across Europe. This causes further difficulty for businesses, and limits development opportunities. It is particularly important for all companies to be able to predict their cash flows because stable finances are a foundation of company growth. Small and medium-sized enterprises face particular pressure due to belated payments as they lack sizeable financial reserves, and the continuity of their operations depend on daily cash flow,” says Ilva Valeika, director for the Baltic States at Intrum.
Fifty-seven per cent of Lithuanian companies admitted that late payments threaten their survival, and a little over half of those participating in the survey indicated that due to this, their liquidity has decreased. These indicators are above the European average.
More cautious about financial stability
The increased risk of late payments due to the pandemic has spurred Lithuanian companies to take more active steps to ensure their financial stability. This year, every fourth company in Lithuania says that they make use of client solvency reviews, while last year, only 13 per cent of surveyed companies did so. Furthermore, there has been a significant increase in companies employing credit insurance – this year, credit insurance services are employed by a third of companies, compared to just 4 per cent last year. Companies are also more active in making use of debt retrieval services, with every third company has been doing so this year. For comparison, in 2019 the percentage of such companies in Lithuania was at 19 per cent.
“The fact that companies are placing greater attention in their cash flow sustainability is a laudable change. Nevertheless, companies still have much to do to improve their own payment practices, and encourage a culture of effective payments. This would increase the private sector’s resilience to crises and would facilitate overcoming economic challenges. A responsible adherence to commitments is a precondition for a stable economy and the functioning of all of society,” I. Valeika says.
Lacking effective payment culture
Fifty-five per cent of Lithuanian companies agree that payments are made belatedly to suppliers due to managerial problems, and this question should be resolved internally within the company. Meanwhile, only 38 per cent of companies think that their management structure encourages a culture of effective payments, and even fewer (32 per cent) apply a code of ethics which seeks to encourage responsible payment practices.
The company Intrum has been releasing The European Payment Report annually since the year 1998. A separate release of the publication focused on Lithuania is being launched for the sixth year, based on the results of a survey performed in February-May 2020 across 29 European countries. The study included a total of 9,980 European companies, which operate across eleven industries. Two hundred and forty Lithuanian respondents participated in the survey.
The credit management company Intrum operates across 25 countries. It employs over ten thousand specialists, who offer services to 80 thousand clients across all of Europe.
