Credit Cost Pressures Hit Businesses Across Europe and North America
The ongoing rise in credit costs continues to weigh on the economy, hitting companies of all sizes, with small and mid-sized enterprises facing more difficulties related to late payments. Debt service costs have doubled within a year, reaching a total of 2,400 million euros. Of this amount, 1,291 million euros are ordinary debt while 1,075 million euros are non‑performing loans. This marks the highest level seen since September 2009, underscoring the strain on cash flow and working capital.
Nevertheless, the average payment period in intercompany transactions kept trending downward, though more slowly than in prior years. The period slipped to 81.3 days in the April–June quarter from 82.1 days in the previous quarter, marking the lowest average delay since 2017. Yet it remains well above the legal 60-day maximum. These figures come from the most recent CEPYME Observatory on credit and liquidity, which captures the ongoing effects of tighter financing conditions on business solvency.
Firms are pressured to shorten payment terms to counter inflation and protect the real value of outstanding receivables. Shorter terms help prevent the erosion of cash collections caused by price increases and aim to curb the rising financial costs tied to higher debt ratios. Still, the rate of on‑time payments stood at just 29.5 percent in the second period, meaning seven out of ten invoices continue to be paid late. The persistence of late payments highlights the fragility of SME cash flows amid rising interest rates.
Across the SME sector, total commercial debt exceeded 180 billion euros. Roughly 70,000 of this total involved medium-sized entities, while small and micro businesses saw debt rise by 5.5 percent to 110 billion euros, a 12 percent year‑over‑year increase. Financial outlays for small and micro firms surged to 1,300 million euros, driven by higher borrowing costs. The rate on new loans up to 250,000 euros climbed from 1.8 percent in the second quarter of 2022 to 4.6 percent in the same period of the current year, reflecting tighter credit conditions and higher risk premia.
Regarding overdue debt, the financial burden grew at a more controlled pace as payment terms tightened for small and medium-sized enterprises, though micro‑enterprises did not experience the same relief. The cost of default for SMEs rose to nearly 1.1 billion euros in the second quarter, an increase of 40.8 percent from the previous year, indicating elevated credit risk across the sector.
Historical record in the industry
In the second quarter, each of the four major industry sectors shortened its average payment period, yet all still surpassed the legally mandated 60 days. The sector figures show a notable reduction, with the industry average falling to a historical low. This improvement is mainly driven by electricity, water, and gas subsectors, which masks slower improvement in other branches such as machinery and electrical equipment (85.7 days), building materials (93.5 days), and even the paper and graphic arts sector (83.1 days).
Related news notes that the agri‑food and services sectors recorded similar payment periods of 73.9 and 73.5 days, respectively. The services subset reached this level for the third consecutive quarter, with clear declines in retail, vehicle sales, and professional activity. Retailers’ average payment time dropped to 65.3 days, and vehicle sales to 62 days, both representing record lows.
Conversely, subsectors such as food distribution and other services extended their average durations to 72.4 days and 95.3 days, respectively. In construction, the average was 97.3 days, reflecting a slight year‑on‑year decrease and a continued downward trend for nine straight quarters.