Swiss debtors replace model bill payers

Bills tend to pile up before they are paid swissinfo.ch

The Swiss are no longer the reliable bill payers they once were: many invoices are paid late or not at all.

The phenomenon has proved catastrophic for many companies and costs the Swiss economy billions of francs.

Until the end of the 1980s, the Swiss were highly regarded for their traditional promptness in settling bills.

Now, however, they are in the lower section of the European table drawn up by Intrum Justitia, a company specialized in debt collection in 22 countries.

According to its latest payment survey, half of all invoices in Switzerland remain unpaid until after the usual 30-day deadline has passed. More than one quarter are still unsettled after 60 days, and over a tenth have not been paid after 90 days.

Debts that will never be recouped account for 1.18 per cent of all bills issued in Switzerland.

Economic and social factors

On average, payments are now made 15 days after the original deadline. Just two years ago, the average delay was ten days, and 20 years ago the problem was virtually unknown.

The trend is clearly a result of the period of stagnation and economic recession in the 1990s, when unemployment and bankruptcies rose to their highest levels in 50 years.

These two phenomena became acute again following the 2001 crisis, which created an extremely difficult situation for thousands of people.

“Continual increases in health insurance premiums, the rising cost of living, and stagnating salaries clearly contributed to making the financial situation worse for many people,” commented Bettina Jacques of Intrum Justitia.

“In addition to economic reasons, we should also consider social factors – such as a higher number of divorces and single-parent families – which have become more widespread in recent years.”

Changed mentality

A steady change in mentality has also taken place in recent years.

“Until 20 or 30 years ago, not only did the Swiss pay their bills promptly, they didn’t even want to take on any debt at all. Many people simply couldn’t sleep at the thought of being in debt,” said Eveline Küng, manager of the credit management company Heinz Küng and Creditreform in Bern.

Nowadays the creditors are more likely to be the ones losing sleep. People in Switzerland no longer hesitate to take on debt even if they know they don’t have the resources to pay it back.

“Many people have become accustomed to a certain degree of luxury and don’t want to forgo their standard of living, even when times are hard,” said Küng.

The trend is becoming more widespread among young people too. “Many young people are not taught by their parents how to manage money.”

Professionals in bankruptcy

Thousands of people have become genuine bankruptcy professionals. Even after being declared bankrupt, they still find new ways to get heavily into debt.

Less serious, but certainly no less damaging, is the category of debtors who by delaying payments for several months manage to avoid accumulating bank loans.

In both cases, the consequences for businesses can be momentous. In Switzerland, 43 per cent of small and medium-sized enterprises (SMEs) say they are experiencing serious liquidity problems due to late payments.

“Every year, thousands of companies across Europe are forced to close as a result of this problem,” said Peter Neuhaus, manager of the SME Foundation.

And the payments crisis affects the entire national economy: unsettled debts, invoices that are paid late and the costs involved in collecting debts cost Swiss companies over two per cent of their turnover.

As a result, the Swiss economy is losing more than SFr10 billion a year, just when it could do with this money to return to growth.

Prevention and education

With debt collection procedures only successful in 70 per cent of cases, the companies specializing in this sector have increasingly turned to prevention.

They have created enormous databases which contain the credit ratings of over half a million companies and individuals. This process is monitored by the Data Protection Commission.

Furthermore, company managers are being taught how to use the legal instruments at their disposal efficiently to obtain payment: telephone calls, letters, warnings and payment orders.

“Many companies let several months go by before they take action. We know that the chance of obtaining payment declines dramatically after 90 days,” explained Jacques.

“Many companies don’t dare to put pressure on a debtor, possibly to avoid losing a business relationship that has existed for a considerable time,” Neuhaus confirmed.

“But then they too are faced with financial problems and cause difficulties for their own suppliers.”

Like the thousands of debtors, the many creditors too must learn to manage their money better.

swissinfo, Armando Mombelli

In brief

According to the survey, payment times vary widely from country to country. They are longest in Greece, at 94 days, and shortest in Norway at 27 days.

The company says a comparison of different business sectors shows that across Europe banking/insurance companies are the best payers, while government and construction firms are the worst payers.

The consequences of late payment are damaging to companies. 62% say overdue debts cause them a problem or a serious problem with their cash flow.