In the face of rising interest rates and slow economic growth, European companies are increasingly defaulting on financial commitments. With defaults reaching the highest levels since 2009, The Recycler examines the implications for the corporate sector and the challenges of cross-border debt recovery in the EU.
The European corporate landscape is facing a growing financial crisis, with a striking increase in companies failing to honour financial obligations, such as invoice payments. The Recycler reports a troubling trend in the rise of defaults, propelled by the dual pressures of soaring interest rates and a sluggish economy.
As of August 2023, 107 global corporate defaults have been recorded, with a significant number tracing back to European origins. This distressing figure is the highest for the month since the financial crisis in 2009, highlighting the mounting distress within the corporate sector. Financial experts warn of a continuing rise in default rates, fuelled by aggressive interest rate hikes amplifying financing costs and looming debt repayments. S&P Global Ratings forecast that Europe’s default rate is expected to climb from 3.1% in July 2023 to 3.75% by mid-2024.
The situation appears to be getting worse in the specialised European office imaging sector, with reports of escalating invoice defaults. One EU-based company revealed to The Recycler this week that it is owed more than €40,000 ($43,620) by just three firms, with some debts dating back to 2020.
However, recovering cross-border debts within the EU is fraught with challenges due to diverse trade cultures, language barriers, and legal hurdles. Before embarking on such recovery, businesses must assess the debtor’s asset sufficiency against the debt, keeping in mind the high costs of the recovery process. Even when assets are adequate, the debtor’s prior debts may take precedence in insolvency proceedings, potentially relegating new claims to the end of a long creditor queue.
Ed: The Recycler understands the impact of customer defaults on international business transactions and invites companies facing these challenges to share their experiences. Your insights are crucial in unveiling effective strategies to mitigate the impacts of payment defaults on businesses.
