Euro crisis puts UK companies in ‘vicious cycle’

A recent study of foreign exchange payments has shown that the UK has fallen into a ‘vicious cycle’ of delayed payments as a result of the Eurozone debt crisis.

There has been an increase in currency exchanges taking places at the end of the month than those at the beginning of the month – Since April last year month-end payments rose by an average of 20%. There were also a higher number of delayed payments in May, July and September, coinciding with the bail-out of Greece, period of high stock market volatility and the downgrade of Italy’s credit rating.

Experts say the crisis has greatly influenced how UK companies conduct their international business transactions. Companies are delaying overseas payments as long as possible in order to keep their money as working capital for as long as possible whilst waiting for better exchange rates.

This has become an especially big problem in small businesses, many of whom are waiting to be paid before paying their suppliers meaning supply chains are suffering and the credit demand goes straight back to the banks.

These new patterns of payment behaviour are a result of high volatility rates following the debt crisis and insecurity and uncertainty among business owners. An exchange rate movement of a few points can be the difference between profit and loss for business owners so even owners who are normally reliable may be missing payments while they wait on a better exchange rate, causing further instability in the market.

 

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2 thoughts on “Euro crisis puts UK companies in ‘vicious cycle’

  1. This phenomena of paying late does not only occur on international transactions, but also public spendings are more and more delayed since the start of the debt crisis. Instead of paying early and thus supporting the domestic companies, the state allows itself plenty of time. It prefers to let the capital work on its own. Surprisingly the payment morale of private companies stayed mainly the same as before the crisis. Companies know, that they would ruine some small suppliers, that are dependend on them, if they delay payments.

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