Some aspects of debt in Spain

Spain is in the fourth place of European Union countries as regards debtors, after Portugal, Czechoslovakia and Lithuania. The average payment period agreed upon between companies is 80 days, the situation worsening in some sectors such as construction, where payments are made at 200 days or state administration where it is 300 days. As a whole, 70% of Spanish business activity is affected by debt. We find, therefore, that 47% of invoices issued in Spain are paid late and in many cases these unpaid invoices are only paid several months after their due date.

Debt is a phenomenon which is very difficult to eradicate in our country. It is part of our tradition and consequently there are many legistative obstacles. We can also observe that Spanish society has always been very tolerant with debtors in spite of the fact that, taking into account Spanish business activity, a debtor can very easily ruin a company.

Time is the worst enemy of collection and the debtor’s best ally - this makes immediate action necessary in the case of non-payment. If the client wants to have a good repayment rate, the debt file must be delivered for management within the first two months.

In a recent survey of debt in Spain it was found that rapid debt management in the first month may lead to recuperating 81.21% of the total owed, in the first three months this amount is reduced to 70.95%, in six months to 52.37%, and down to 32.26% when the debt goes as far as nine months. If the debt has not been recuperated within the year it is very possible that only 12.68% of cases will be solved.

Madrid and Barcelona are the cities which account for 35% of debt in our country. In the last year alone, 600 million euros per month went unpaid throughout the country. Madrid is responsible for 13.92% of the total national debts and Barcelona for 21.06% of the total. As regards problem months, October, at the end of the financial year, is one of the most complicated months when payments come together with taxes such as VAT or Income Tax falling due at the same time so that often enough many companies are left without treasury.

The most serious aspect of surveys carried out to discover the causes of unpaid debts in Spain demonstrate that the debtor’s intentionality is the first reason for debts in 62% of cases. This means that the majority of debtors could pay, but do not do so because they simply don’t feel like it. Companies lack a culture of prompt and correct payment and, for many it is perfectly ethical to delay payment up to the last moment as a free source of financing. There are even company owners who consider it normal to pay invoices only after the creditor has asked for payment several times.