#Countryfocus: debt management and credit collection in Italy

The chronic delays in payments of SMEs is still an issue.

The Italian economy, with many ups and downs and surely not supported by the politic and banking systems, is struggling to quit a prolonged recession. At the end of 2013, GDP had fallen by 8.3% compared to the peak reached in 2007, before the crisis, and it is expected to foresee further contractions in 2017.

In the same period, investments were also resized: private investments went down by 3.2 percentage points of GDP, while public ones decreased by 0.5 percentage points.

Italian economy is predominantly based on the production of goods of a lower-middle technological content, and it’s highly exposed to international competition in terms of costs. An economy not inclined to invest in R&D (0.69% of GDP – about half compared to the euro zone standards) and where the share of investments in TLC is less than in other important European Countries.

What is holding the growth back?

The absence of an adequate political stability, an outdated tax regime and nonexistent Financial flexibility are among the reasons that, until now, didn’t help the growth of Italian companies.

In the past years, most of the financing sources of Italian SMEs haven’t evolved much, remaining strongly anchored to the traditional banking system. Only a small number of companies, less than 6%, has diversified its sources of supply, turning to the capital market.

At the end of 2015, the impact of Bonds of total financial debt amounted to 4.1%, which marked a slight increase compared to 3% in 2006.  Bank loans are still predominant, steadily around 90% of financial liabilities. In the current context of uncertainty that characterizes the domestic banking system, the extreme dependence of Italian SMEs on banks could have negative effects on Companies that haven’t adequately diversified their sources of funding and their ability to finance investments and the production cycle.

Companies that have diversified through the bond debt instrument recorded in the years 2012-2015 an average annual growth rate (CAGR) of 1.6% of revenue, more than double the result compared to 0.7% recorded for companies without bonds and significantly higher than the modest increase in Italian GDP (+ 0.3% on average during the same period).

The low uptake of alternatives to banking also reflects negatively on the balance sheet and financial profile of the Italian SMEs, which remains rather weak. About half of the companies analyzed present, at the end of 2015, a ratio between cash and short-term financial debt that is less than 50%.

What is the situation regarding  the punctuality of payments?

The punctuality of payments of Italian companies, which is one of the main indicators of health status, is improving:

  • 12.6% of SMEs are charged with serious delays, an improvement compared to 2015, when it was 13.1%.
  • 35.4% of the companies pay on time.
  • 51.5% of companies pay within a month

his is a situation that, after years of insecurity, seems to have found a stable structure. Nevertheless, compared to 2010, the current scenario remains worrying: delays beyond one month mark a + 129.1%, while the maturity payments decreased by 4.3%.

What is the situation of bankruptcies?

The number of bankruptcies of Italian companies has been falling.

The third quarter of 2016 confirms the reversal trend after the recent worrying increase in bankruptcies, which reached its peak in 2014 with a total of 15,336 closures. In the third quarter of 2016 Italian enterprises that go to court were 2,704, a decrease of 4.4% compared to a year ago, and a decrease of 7.8% compared to 2014.

From the beginning of 2016, 10,047 companies went bankrupt, with an average of 52 closing daily. If we compare the present scenario with the one of 2009, we can notice that bankruptcies, however, grew by 58.9%, a clear sign that we are still far from pre-crisis levels.

What are the payment habits?

The Italian payment system has recently undergone significant changes.

In September 2016, the punctual payers account for 35.9% of the total, while payments more than 30 days late settle at 12.6% (+ 129.1% compared to 2010).

Micro-realities actually confirm a positive performance in the payment at maturity class with a concentration of 37%, but they also recorded the largest share of serious delays (13.8%), still growing compared to 2010.

The North East is the most reliable region with 44.4% of regular payments, while southern firms show a more problematic behavior with only 22.7% of regular payments.

Lombardy is the region with the largest share of regular payments (45.3%), while Sicily and Calabria occupy the last positions of the regional ranking of punctual payments with shares below 21%.

The most punctual product groups are financial services (46.3%), while in the retail area punctual payments regard only 26.2% of companies.

The comparison of the 2010 payment performance with those of the first quarter of 2016 are striking aggravations for retail sale and various services, with an increase of serious delays respectively equal to 171.6% and 134%.

How to collect receivables in Italy?

According to a recent study, Italy is 27th out of 44 analyzed Countries, together with Turkey, Brazil, USA and India. The slow and complex judicial procedures make “unreasonable” to start a legal action. In Italy, judicial proceedings are slow, complicated and expensive; sometimes, court decisions need years to be settled.

The debt collection proposed by Invenium is aimed exclusively at companies and is based on out-of-court mechanisms that always contemplate meetings with counterparts and litigation is resolved, in most cases, through:

  • Settlement agreements
  • Return plans
  • Debt restructuring

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