Inflation triggers business delinquencies by 42% in the first quarter

The high inflation is having a full impact on the accounts of Spanish companies, whose commercial debt with delayed payment is already close to 350,000 million euros in the first quarter, 42% more than in the same period of the previous year. Cepyme data published this Tuesday reveal that business delinquencies in Spain increased 3 points compared to the last quarter of 2021.

The indicator, which measures the increase in invoices with payment delays and the extension of payment periods, indicates that the commercial debt with delays is already 73.3% of the total, reaching a volume of 348,992 million euros, a 42% more than in 2021.

According to the Spanish Confederation of Small and Medium Enterprises, Cepyme, the slowdown in the recovery of the economy and the adverse impact of inflation on accounts continue to negatively affect the evolution of delinquency

The delinquency rate stands at 2018 levels, after it started to decline in early 2019 so far. In Cepyme they explain that this level of delinquency has a “double cost” for companies. On the one hand, due to the financing difficulties to cover the delay in payment and, on the other, due to the demanded default interest, which is estimated to be 1,800 million for this period, taking into account an average delay in payment of 23.9 days and a legal default interest of 8%, is 50% more than in the first quarter of 2021.

And it is that the average payment period has shot up to 83.9 days, compared to the already high 81.4 of the previous quarter. “This strong increase is due to the slowdown in the economy affected by the escalation of prices and the consequences of the conflict in Ukraine,” explain the businessmen. According to their data, companies “are not transmitting all of the increases in their costs to the end customer, which translates into a shrinking cash flow, which affects the ability to pay suppliers.”

In fact, a growing number of companies recognize this problem and are negotiating with their suppliers an extension of payment terms. This situation would explain the increase in the average payment period observed in the first quarter and makes the forecasts in this regard negative, they indicate from Cepyme. According to his forecasts, tensions in energy prices will continue, at least, until next spring and as cost increases have become widespread, there is additional pressure on business margins that increases the risk of non-payment or delays in dealing with to obligations in the coming months.

All this in a context dominated by uncertainty and in which central banks are determined to curb inflation with interest rate hikes, which are already being carried out by the Fed in the US and the ECB in Europe. “This will translate into higher financing costs and tougher conditions to access said financing, which will complicate the possibility of accessing external financing to deal with cash gaps,” they point out.