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Economic Impact of Late Payments


  • William Connell


Delays in payments in Business to Business (B2B) and Government to Business (G2B) transactions generally have an adverse effect on the cash-flow of firm and can cause firms, particularly small ones, to seek extensions of their overdraft facilities and increase their borrowing. Late payment of commercial debt can play a significant role in the survival of firms as their liquidity can be severely affected, even forcing some firms to exit the market. This has been particularly important during the economic and financial crisis as access to credit has been more restricted. This note addresses the economic effect of late payments by approximating the possible financial cost for firms and by estimating the empirical link between late payments and the exit rate of firms. Both payment delays in G2B and B2B transactions are considered. The note focuses on four EU countries where late payments are a serious problem (Italy, Spain, Portugal and Greece), but the econometric analysis linking late payments with exit rates uses a broader set of Member States and thus the results can be easily extended to other countries. This work was carried out in the context of an ECFIN project which main findings are presented in the report: European Commission (2014) "Market reforms at work in Italy, Spain, Portugal and Greece", European Economy 5|2014

Suggested Citation

  • William Connell, 2014. "Economic Impact of Late Payments," European Economy - Economic Papers 2008 - 2015 531, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0531

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    Cited by:

    1. Zbigniew Golas & Jakub Golas, 2021. "Late Payments in Poland: Economic and Legal Perspectives," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 90-106.
    2. Engler, Philipp & Große Steffen, Christoph, 2016. "Sovereign risk, interbank freezes, and aggregate fluctuations," European Economic Review, Elsevier, vol. 87(C), pages 34-61.
    3. Antonio Fabio Forgione & Carlo Migliardo, 2019. "An empirical analysis of the impact of trade credit on bank debt restructuring," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(2), pages 415-438, July.

    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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