2 – Significance of Non-Performing Receivables


One of the major sources of financing of the Serbian MSME sector comes from suppliers and purchasers. According to the last available data from the Serbian Business Registers Agency (hereinafter: SBRA), total (gross) short-term obligations from the business operation of the non-financial sector in 2019 are close to 17 percent of the total value of assets. In the sector of micro and small companies, the share amounts to 19 percent and 29 percent, respectively, which is significantly more than 12 percent of the share at large companies. By comparison, in Germany, the trade credit share is somewhat less in comparison to the total balance sheet liabilities, and it amounts to 15.8 percent. Still, it represents the most important external source of financing of the non-financial sector. The table below shows that Serbian small businesses report using trade credit regularly as a source of finance and more frequently compared to ECA and other countries. WB BEEPS data for 2019 show that only 12% of SMEs reported using banking core products (i.e., loans, overdrafts, and/or credit cards) to finance investments, but 48% reported banks as a source of working capital. While an important source of finance for Serbian MSMEs’ working capital is bank finance (loans or overdrafts), the use of trade credit as a source of financing working capital (Table 1) is about two times more likely in Serbia (49%) compared to other countries both in the region (24%) and overall (28%). Furthermore, the significance of the use of trade credit increased as the 2013 BEEPS Survey showed that 43.3 percent of companies used trade credits to finance the working capital.

Non-performing trade credit and unpaid receivables have been recognized as obstacles to the financial stability and growth of the MSME sector. According to the 1000 businesses survey, 11-12% of businesses never try to enforce their accounts receivable. Furthermore, 30% of businesses need more than 60 days to settle their receivables and generally micro and small firms do not classify receivables. Only a small fraction perform classification and make distinction between non-performing and problematic receivables.


Table 1.  The use of trade credit as a source of financing working capital

  Serbia ECA All countries
Percent of firms using banks to finance invest 39.4 26.6 26.5
Small (5-19) 28.1 24.6 23.6
Medium (20-99) 48 27.7 28.9
Proportion of investment financed internally (%) 60.8 75.2 71.8
Small (5-19) 66.3 76.2 73.5
Medium (20-99) 56.6 73.7 69.6
Proportion of investment financed by banks (%) 19 14.1 14.9
Small (5-19) 12.1 13.2 13
Medium (20-99) 24.3 14.9 16.5
Percent of firms using banks to finance working capital 51 30.6 30.1
Small (5-19) 48.3 27 25.8
Medium (20-99) 52.2 36.7 37
Percent of firms using trade credit to finance working capital 50.1 24.7 29.7
Small (5-19) 48.8 23.8 28.3
Medium (20-99) 51.8 26.6 32.2
Proportion of investment financed by supplier credit (%) 14.4 4.2 4.9
Small (5-19) 13.8    
Medium (20-99) 15.7    
Proportion of working capital financed by banks (%) 17.8 10.1 11.7
Small (5-19) 17.1 8.9 10.1
Medium (20-99) 18.8 12.1 14.4

Source: World Bank BEEPS data 2019


Serbian MSMEs have high losses due to bad debts compared to their peers. As per the European Payment Report (EPR) 2018, Serbia is among the countries reporting the highest average levels of bad debt loss as a percentage of total annual revenue in 2017. Serbian companies report that, on average, they experienced bad debt losses in 2017 that amount to 2.9% of total annual revenue. In the Report, it is also stressed that of all European companies that were polled, Serbian companies are the slowest in handing over outstanding invoices to a collection agency. The European average for handing over outstanding invoices to a collection agency amounts to 82 days, while the average for Serbian companies amounts to 264 days. These effects are passed on through supply chains as MSME paid their suppliers late because they had received less than they owe. According to research undertaken by EOS MATRIX/IPSOS in 2016 on a sample of 200 medium-sized and large retail, manufacturing, and services firms, time to payment in business-to-business (B2B) transactions in Serbia was among the longest in Europe. Only 12% of all B2B payments were made in under 30 days, with the retail sector seeing the worst excesses. There is some anecdotal evidence that larger firms pay more slowly and more often lately than MSMEs. However, there is an obvious need for more reliable recent data on late payments, and the proper policy response should be evidence-based.

According to the 2019 European Payment Report (EPR),[1] the average payment terms in B2B transactions had increased in October 2019 relative to 2017 (from 35 to 38 days), with, consequently, the average time actually taken by customers to pay also rising (from 39 to 40 days). The European average for payment terms accepted by customers was 43 days, with customers actually taking 40 days to pay. In addition, in B2C transactions the longest average time to collection was 47 days (whilst the European average stood at 23 days), and the average time to payment by the public sector, of 38 days, was below the 42-day European average (with payment terms allowed to the public sector also lower than the average). In Serbia, late payments were mostly caused by debtors in financial difficulty, as reported by 72 percent of those polled in 2019 (up from 82 percent in 2018), as opposed to the European average of 54 percent. According to the EPR, 1.6 percent of all accounts receivable in Serbia are written off, lower than the European average of 2.6 percent in 2019. All other reasons given for poor performance with collection are below the European averages, indicating that illiquidity in the Serbian economy is recognised as the primary cause of inadequate collection.[2]

These data reveal that Serbian businesses face the greatest issues in collecting from customers; that issues with collection from other businesses are not as pronounced relative to the European average; and that Serbian firms have the least issues when dealing with the public sector. The preferred precaution among Serbian companies to protect against bad payment is pre-payment, with 65 percent of Serbian companies favouring this alternative, in comparison to the European average of 39 percent.[3]

According to the Payment Study,[4] in 2019 no more than 27.3 percent of all businesses made payments on time, as opposed to the European average of 44.3 percent. Figures for 2017, 2018 and 2019 show that payments by due date had declined by 2.4 percent in 2018, sliding further by 3.1 percent in 2019 relative to 2018 and by 5.5 percent in 2017. Payments past due by up to 90 days increased by 3.2 percent in 2019, with payments past due by more than 90 days (‘very late payments’) up by 0.1 percent relative to the preceding year. Large companies had the poorest payment practices: no more than 20.3 percent of these firms paid on time. In the MSME segment, small businesses were the best examples, since 28.5 percent of them paid by due date, with another 62.6 percent doing so within 30 days of payment becoming due. Micro- and medium-sized firms generally paid within 30 days. These figures show that MSMEs face cash flow issues when dealing with large companies, since they pay more regularly than large firms.

A survey conducted by EOS MATRIX/IPSOS revealed that the prevalence of late payments placed Serbia at the very head of the list of countries surveyed, with one in three invoices (29 percent) not paid by due date and 4 percent remaining unpaid altogether. At the sectoral level, late payments accounted for 23 percent of all transactions in the services sector, rising slightly in industry and trade (at 30 and 31 percent, respectively). In B2B transactions, creditors had to wait for payment for on average 50 days after maturity (in an SCC survey, this figure was found to be 47 days). The shortest delay was identified in industry (44 days), followed by trade (55 percent) and services (63 percent).

There are several reasons for the failure of MSMEs to resolve the problem of non-performing trade credit and unpaid receivables. These include asymmetric bargaining power distribution between suppliers and customers, legal impediments, poor risk management, widespread culture of late payment, and inadequate management of the trade credit function. Again, the nature and extent of these reasons for failure to optimize trade credit varies from sector to sector and is often contingent on market conditions and the sector’s structure. Efficient resolution of unpaid receivables reduces the reliance on internal funds or informal sources such as family and friends by connecting firms that are creditworthy to a broad range of lenders and investors. If payment receipt periods are longer than payment demand periods, then this can quickly create funding gaps. There is evidence that this issue is affecting Serbian MSMEs. Although common payment is regulated by the Law on settlement deadlines that has been effective since 2012 and it is a transposition of the 2011/7/EU Directive into the Republic of Serbia legislation.

Given the difficulties associated with securing bank loans, MSMEs are increasingly turning to the alternative finance industry with online invoice trading being a promising approach. This particular industry fills the funding gap with innovative funding solutions. Innovative online platforms are delivering newer financing models, such as crowdfunding, peer-to-peer lending, invoice discounting and invoice trading (traditionally, debtor finance products). These certainly provide more efficient and flexible custom working capital solutions to businesses of all sizes. But it is MSMEs that stand to gain the most from these alternative finance solutions. Some of the services online invoice trading companies are offering includes Debtor financing, Invoice factoring, invoice discounting and receivables financing. These are the alternatives to traditional finance products provided by banks. They allow businesses to selectively sell one or more unpaid invoices to private investors as and when they need earlier access to accounts receivable. This provides fast access to much needed working capital, unlocking funds that might not otherwise be available to businesses for up to 120 days and more.


Unpaid receivables are among the most problematic consequences of the Covid-19 outbreak. Almost two thirds of businesses state that they expect to face major difficulties with respect to settlement of debt (67%), as well as with respect to collection of receivables (64%). This leaves Serbian companies unable to fulfil orders and contractual obligations, which is also having a substantial impact on local and regional supply chains. To ensure sufficient liquidity of MSMEs, an effective counterpart remedy may be achieved through mechanisms for reducing the risk exposure of MSMEs. For example, the preferred precaution among Serbian companies to protect against bad payment is pre-payment, with 65 percent of Serbian companies favouring this alternative. In comparison, the European average is only 39 percent.[5] Due to the crisis, this precautionary policy will be less viable. In the short term it is more likely that Serbian companies will be forced to sell goods and services without asking for pre-payment to stay in business.

The IMF recently assessed the financial resilience of the corporate sector using corporate balance sheet information combined with earnings expectations at the sector level.[6] The results for 2019 show a substantial heterogeneity across sectors and a potential increase of Debt at Risk to about 33 percent in 2020, with companies in hospitality, machinery and equipment, and transportation sector receiving the hardest hit.[7] These highly affected companies employ about 110,000 employees.

The initial data on the late payments in the Serbian economy has indicated that companies’ payments to their suppliers and vendors have been prolonged because of the Covid-19 outbreak. The Payment index[8] was used to estimate the initial effect of the Covid-19 containment measures on late payments. The lower value of index indicates longer period required to pay the debts. The data[9] suggest the presence of the negative trend, and that this trend has deepened in 2020 because of the Covid-19 outbreak. In other words, the companies’ average payment period was relatively stable until 2020. The weighted[10] average payment period for companies from selected sectors has increased from the average of app. 15 days (70 – 74 Index points) to app. 30 days (or from 50 to 69 Index points) in 2020. Unless a breakthrough in containing Covid-19 pandemic, it is reasonable to expect that this trend could continue in 2021 (see Figure 1). Similar trends regarding payment periods were observed in all four analysed sectors (see Figures 2 and 3).


Figure 1 Payment index of the Serbian economy*

*Agriculture, Manufacturing, Construction and the Wholesale and retail trade sector combined.

Source: Author’s calculation based on the data from Bisnode LLC.



Figure 2 Payment index of the Agriculture, forestry and, fishing and Manufacturing sector

Source: Author’s calculation based on the data from Bisnode LLC.



Figure 3 Payment index of the Construction and the Wholesale and retail trade sector

Source: Author’s calculation based on the data from Bisnode LLC.



Prior to 2020, the share of the trade credit (operating liabilities) in the total liabilities in all four selected sectors was stable. Between 2014 and 2019 the share of operating to total liabilities was relatively stable (34.4%). However, a considerable difference in trade credit practice is present between the four analysed sectors, ranging from the average of 23.9% in the construction sector to the average of 45.7% in the wholesale and retail sector in the observed period (Table 1). In the pre-Covid period, about a third of the company’s total financing was related to the trade credit. This may suggest that there is no significant additional room for increase in the share of trade credit in total company financing.


Table 2.   The share of the trade credit (operating liabilities) in the total liabilities in four selected sectors

Sectors 2014 2015 2016 2017 2018 2019
Agriculture, forestry, and fishing 38.3% 37.3% 34.7% 35.1% 34.3% 32.0%
Construction 22.6% 23.7% 25.2% 25.1% 24.2% 22.5%
Manufacturing industry 31.2% 31.0% 32.3% 33.4% 34.0% 35.2%
Wholesale and retail trade 45.6% 46.2% 46.1% 45.8% 45.9% 44.4%
Average 34.4% 34.6% 34.6% 34.8% 34.6% 33.5%

Source: Author’s calculation based on data from Bisnode LLC.


Based on financial statements, companies took on average 129.3 days per year to settle down their trade payables in the period from 2014 to 2019. Companies from the wholesale and retail trade sectors had the shortest average settlement period (88 days). The longest period to resolve trade payables (165.6) was recorded in the construction sector. It is also reasonable to expect that due to changed circumstances the days payable outstanding will increase in the forthcoming period.


Table 3.   The days payable outstanding in the four selected sectors

Sectors 2014 2015 2016 2017 2018 2019
Agriculture, forestry, and fishing 150.5 145.0 146.5 153.0 144.3 144.4
Construction 197.4 151.6 179.5 171.7 155.1 138.0
Manufacturing industry 115.4 110.2 124.4 119.6 115.4 113.9
Wholesale and retail trade 78.4 73.9 98.9 96.8 92.1 88.3
Average 135.4 120.2 137.3 135.3 126.7 121.1

Source: Author’s calculation based on data from Bisnode LLC.


The companies in analysed sectors required additional financing compared to the pre-Covid-19 period. The duration of the business cycle in the observed period was longer than the duration of the cash cycle, which indicates the need for additional sources of financing (Table 3) as well as additional illiquidity exposure during and after the Covid-19 outbreak.


Table 4.   The days payable outstanding in the four selected sectors

Sectors 2014 2015 2016 2017 2018 2019
Agriculture, forestry, and fishing 52.4 56.5 52.7 64.1 65.8 72.0
Construction 80.1 91.4 69.6 61.5 60.0 70.5
Manufacturing industry 47.8 45.5 41.9 44.6 49.7 52.4
Wholesale and retail trade 37.3 37.6 28.2 32.0 34.4 35.3
Average 54.4 57.7 48.1 50.6 52.5 57.5

Source: Author’s calculation based on data from Bisnode LLC.


Large companies that are affected due to prolonged crises may become the source of illiquidity in their respective sectors.[11] In the pre-Covid period payment practice of large companies tended to be longer than the average payment period in their respective sectors. The slower payment period of the large companies compare to the Wholesale and retail trade sector averages indicates that the large companies had exercised their market position to impose business conditions that are disadvantageous to their suppliers in the terms of cash flows and liquidity. In other words, large companies that make up the sample were imposing trade credits on their suppliers to improve their liquidity to the detriment of their suppliers. This effect is less pronounced in the Accommodation and food services sector, as it is much more liquid by default and there is less need for the trade credits compare to the wholesale and retail trade sector (Figure 4).


Figure 4 Large companies’ sample – Payment index

* Gross value added of the selected industries was used as a weight in the calculation of the weighted averages.
** Companies’ shares in the sample’s total income were used as a weight in the calculation of the weighted averages.
*** Weights from 2019 were used as weights for 2020.

Source: Author’s calculation based on data from Bisnode LLC.


Based on the preliminary and incomplete data from 2020, there was no significant difference in payment practice of large companies compared to the previous period. A viable explanation for the somewhat constant payment practices of large companies, despite the economic crisis caused by Covid-19, maybe Government measures to support the economy. However, another explanation may be the lack of data and the incompleteness of the database used. The same data show convergence between the market average payment period and the payment period of large companies in 2020. Assuming that the payment practice of large companies remained fairly constant, this would indicate that MSMEs were more significantly affected by the Covid-19 containment measures. The practice of shifting the costs of adjustment to the crisis from large companies to small ones will make the business condition for MSMEs more difficult and it will make them more vulnerable to the consequences of the economic crisis. The additional burden in the form providing trade credits to large companies is something that MSMEs will not be able to bear on their own during the economic crisis.

The USAID ninth Annual Survey of 1,000 Serbian companies have shown the significant impact of Covid-19 on various aspects of conducting business in Serbia[12]. Over 60% of micro and small companies respectively have reported higher possible difficulties in settling their financial obligations and in collecting their trade receivables in 2020 (see figure 5). Around 40% per cent of medium and large size companies respectively have stated that they would face a possible hurdle in meeting their financial obligations in the upcoming year. More than a half of interviewed medium-size companies are expecting additional problems in collecting their trade receivables in 2020 and about 40% of large size companies have the same expectations in the coming year (see figure 5).


Figure 5. Possibility of settling financial obligations (a) and to collect receivables (b)

Source: USAID ninth Annual Survey of 1000 Serbian Businesses


Half of all companies surveyed reported decreases in revenue and net profits in 2020. More than two-thirds of surveyed micro and small companies respectively are expecting that their business income would be lower in the range between 20% and more than 50% in 2020 compared to the previous year. About 50% of surveyed micro and small companies respectively are expecting that their business income would be reduced in a range between 20% and 50% compared to 2019 Over half of the medium-size companies are expecting a reduction in business income in the range between 20% and 30% in the same period (see table 4).


Table 5.   What will be the economic impact of the coronavirus on reducing your business income in 2020?

  Micro Small Medium Big
Up to 10% 4.4% 11.5% 16.2% 16.7%
10 to 20% 18.0% 15.2% 27.2% 16.7%
20 to 30% 30.7% 31.4% 56.5% 16.7%
30 to 50% 22.0% 21.1% 0.0% 16.7%
More than 50% 17.9% 13.7% 0.0% 16.7%
Refusal 6.9% 7.3% 0.0% 16.7%

Source: USAID ninth Annual Survey of 1000 Serbian Businesses


The usual period in which surveyed companies are collecting their trade receivables is between 30 and 60 days. Also, about one third of surveyed micro, small and medium size companies have reported that usual duration for collecting trade receivables exceeds 60 days. (see table 5).


Table 6.  What is the usual duration of collecting outstanding receivables (from maturity date to payment

  Micro Small Medium Big
Less than 30 days 20.2% 20.1% 19.3% 22.6%
31 to 60 days 28.5% 32.3% 33.7% 45.3%
61 to 90 days 16.0% 17.8% 22.0% 13.2%
91 to 180 days 7.4% 9.7% 7.7% 9.4%
More than 180 days 3.1% 7.9% 5.8% 3.8%
We have no outstanding receivables 22.1% 10.4% 10.1% 3.8%
Refusal 2.7% 1.9% 1.5% 1.9%

Source: USAID ninth Annual Survey of 1000 Serbian Businesses



[1] Intrum Iustitia, European Payment Report 2019. Available at intrum.com/media/5755/intrum-epr-2019.pdf.

[2] Ibid, 9, 66.

[3] Ibid, 66-67.

[4] Cribis Dun & Bradstreet, Payment Study 2020, 184-185. Available at hello.bisnode.com/rs/145-JUC-481/images/Payment-Study-2020-cs.pdf.

[5] Intrum Iustitia. 2019. European Payment Report, 66-67. Available at intrum.com/media/5755/intrum-epr-2019.pdf.

[6] See IMF. 2020. Republic of Serbia: Fourth Review under the Policy Coordination Instrument-Press Release and Staff Report, available at https://www.imf.org/-/media/Files/Publications/CR/2020/English/1SRBEA2020001.ashx.

[7] Debt is considered at risk if a company’s net earnings (EBIT) do not cover its interest costs fully and its current liabilities exceed current assets.

[8] The payment index developed by Bisnode LLC is calculated as a weighted average of the day between the settlement date and the invoice value date. The payment index is recalculated on a monthly basis. The payment index shows the estimated payment habits of companies on a scale from 0 to 100. The payment index of 80 means that, according to the available information, the company settles its obligations on time. A higher index means that invoices are settled before the payment deadline, while an index below 80 shows that invoices are paid late. The payment index in the range between 75-79 indicates up to 7 days late in payments; in the range between 70-74 indicates up to 15 days late in payments; in the range between 50-69 indicates up to 30 days late in payments etc.

[9] The main limitation of this data set is a high volume of missing data.

[10] Gross value added of the Agriculture, Manufacturing, Construction and the Wholesale and retail trade sector were used as a weight in the calculation of the weighted averages.

[11] The assessment was based on data from the 100 largest Serbian companies, concerning operating revenues, from the Wholesale and retail trade and the Accommodation and food services sector. The selected companies had a market share of at least 1% in their respective markets. The Wholesale and retail trade and the Accommodation and food services sectors were chosen because these sectors were most affected by the Covid-19 containment measures.

[12] On November 12,2019, the United States Agency for International Development’s (USAID) Cooperation for Growth Project released the findings of the ninth Annual Survey of 1,000 Serbian businesses. The survey’s sample of businesses mirrors the Serbian economy by region, size, and sector. It consists of 95% micro and small companies, 3% mid-size companies, and 2% large companies.