Payment discipline varies

IN SLOVAKIA’S small, open economy, the payment discipline of companies is affected by global trends and varies according to sector. While some market watchers see no significant changes in firms’ payment discipline, others have said the situation is worsening and look to the future with a twinge of pessimism.

Construction firms are among the worst offenders.Construction firms are among the worst offenders. (Source: SITA)

IN SLOVAKIA’S small, open economy, the payment discipline of companies is affected by global trends and varies according to sector. While some market watchers see no significant changes in firms’ payment discipline, others have said the situation is worsening and look to the future with a twinge of pessimism.

“Our association has not registered a significant change in the payment discipline of companies in Slovakia, which it perceives as a [sign of] stabilisation after the crisis years of 2008-2009,” Michal Šoltes, the president of the Association of Slovak Collection Agencies (ASINS), told The Slovak Spectator. “However, the average volume of debts being recovered has decreased, from approximately €2,000 to about €1,000, while the number of solved debts remains similar. This decrease may also be affected by the fact that we are solving fewer claims with a significantly higher nominal [value] than two or three years ago. This may indicate more successful avoidance of the formation of high irrecoverable claims.”

According to Ľubica Petrufová, the head of the debt collection and claims department at Coface in Slovakia, payment discipline improved somewhat compared with 2012, but the volume of irrecoverable claims increased.

Atradius Collections points out that the payment discipline of Slovak companies was significantly affected by the global crisis and the recoverability of receivables decreased. The company also encountered, especially in the years 2012 and 2013, the trend of ‘siphoning’ assets from functioning companies, Roman Kmak from Atradius Collections told The Slovak Spectator. This has happened with some large and medium-sized companies, especially in the field of the purchase and sale of fast-moving consumer goods, typically food, where the company halted its economic activity and the owner transferred it to a ‘white horse’, i.e. a person without any assets. Kmak added that the situation in the construction sector was also bad when several construction companies wrapped up their operations in a very short period of time and stopped settling their financial debts.

Exekučná, a debt recovery company, has been registering an increase in new cases of recovered claims since the autumn of 2013 and it seems that this negative trend will continue as the number of companies in secondary insolvency is increasing, Peter Makovický, executive officer of Exekučná, told The Slovak Spectator. The volume of claims remains unchanged.

“Payment discipline is worsening,” said Makovický, adding that they have recommended their clients, as a preventive measure, to shorten the time period for passing the claim for recovery from the usual 60 days to 30-45 days after the due date, as there is then a better chance of recovering the payment.

Based on Coface’s experience, companies settle invoices with each other 44 days after the due date.
According to Tomáš Mezírka, director of Atradius Slovensko, the average period for collecting a debt in Slovakia was about 44 days in 2013, which is one of the better results within Europe.

“Based on the latest development which our insurance company has been registering, it is possible to expect a moderate improvement in 2014,” said Mezírka. “Simultaneously, the payment discipline within local trade belongs among the worst, with approximately 39 percent of claims not settled by the due date, when the average in local trade in eastern Europe is approximately 30 percent and in western Europe about 29 percent.”

According to Ján Rakár, the head of the risk department at Atradius for the Czech Republic and Slovakia, the volume and the number of claims being recovered has not been improving in general.

“But it is necessary to distinguish between individual sectors,” said Rakár. “While the construction sector has brought little reason for optimism, processing sectors should benefit from the revival of European economies.”

The ability to recover a claim diminishes over time, according to Petrufová. Coface’s experience is that they manage to recover approximately 60 percent of the claims that are not more than 180 days overdue.

The costs of collection debt out of court differ depending on the volume, the age of the claim and the country in which the debtor operates. In Slovakia the rate oscillates between 4 and 9 percent, according to Petrufová. Coface takes a portion of the recovered sum, but the costs of debt collection services have decreased significantly over the last three years.

Makovický agrees, saying that rewards for collection agencies have been decreasing over the last few years due to competition, as the number of collection agencies has significantly increased in the last few years.


ASINS listed among several legal norms recently adopted which affect the field of claims recovery revisions to the Code of Enforcement Procedure, the Commercial Code, the Bankruptcy Act and Restructuring.

According to Mezírka, they welcomed some changes while others were questioned.

“One example for all – since its implementation, the EU directive combating late payments in commercial transactions in 2013 has not brought either improvement or a shortened period of payment, based on references from our partners,” said Mezírka, adding that this is valid not only within the B2B segment, but also in relation to the public administration.

Mezírka is also very critical of how the restructuring law enables ‘salvaging’ companies, which no longer have a place on the market.

“Based on our experiences, but especially of those of our clients, the legislation and the bad law enforceability in Slovakia are the basic problems when solving claims effectively,” said Mezírka. “Legislative changes have not brought the required effect.”

Makovický agrees that a lot of changes were adopted, but the fact is that while they help the state recover its claims, in ordinary practice they are rather cosmetic.

“I do not think that our legislation is plainly bad,” said Makovický. “I rather see the problem in sticking to the law. Also, a great and known problem, for which nobody does anything, is corruption. Corruption reaches up to enforcement or court verdicts; otherwise we could not have here in Slovakia so many senseless verdicts.”

Thus, according to Makovický, people’s morals, and corruption, are the problems.

“The problem is that Slovakia is changing into a country in which year-long commercial relations do not pay any more; where there are no valid long friendships,” said Makovický, adding that everybody is entering a deal with the intention to make savings on it, that he or she will make complaints, that he or she will return the goods or pay later. “The problem is the morals of people… If people had their morals in order, we would not need to change any laws, as the laws basically say what is wrong and what should not be done.”


Based on developments over the last few years, ASINS expects the situation of the payment discipline of companies to stabilise. Šoltes specified that businesses’ ability to make payments, to secure the sale of their products and services, and to precede the occurrence of irrecoverable claims via effective management of claims will have the biggest influence over the fulfilment of the above preconditions. Also, the possible legislative changes and support for small and medium-sized businesses from the state may affect payment discipline to a considerable degree.

With respect to the increasing number of bankruptcies (8 percent more in 2013 than a year ago) and restructuralisation (up 25 percent) Coface does not foresee any improvement in payment discipline.
Makovický of Exekučná expects that claims will increase as well as the number of companies with problems, and does not see the deflation that has hit Slovakia as good news.

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