Amidst the war in Ukraine, a worsening labor shortage and an economy reliant on the nation’s military mobilization, payment delays are on the rise in Russia prompting concern for credit managers entangled with businesses overseas. 

In FCIB’s Credit and Collections survey, 100% of those polled found that the ongoing Russia-Ukraine war and government approval were the primary causes of payment delays in Russia. With average payment delays being eight days beyond terms. Similar to Venezuela and Ukraine, all sales in Russia reported in the survey were with existing customers, with half of credit managers not extending credit in the country and the other half granting 1-30 payment terms. 

What they’re saying: “With continued global inflation, war in Ukraine and high interest, you need to know your true legal customers to prevent fraud and keep your A/R secured,” one responder wrote. 

This year will be the second year in a row that Russia has seen strong economic growth following a slight decline in 2022 at the onset of the war. Despite this, inflation is still climbing according to Reuters, with economy ministry experts expecting it to reach 7.3% by the end of the year, more than 2% higher than had been anticipated in April. Inflation is not expected to reach the central bank’s target of 4% till 2026. 

Yes, but: It is impossible to evaluate the Russian economy without considering the ongoing Russia-Ukraine war, which began with the invasion of Ukraine in February 2022.

• Economic sanctions have plagued Russia since their 2014 annexation of Crimea and only tightened as the conflict in Ukraine escalated.
• The invasion of Ukraine prompted Western nations to increase sanctions significantly.
• Most notably, the United States, European Union, United Kingdom and others prohibited transactions between Russia’s central bank and finance ministry, effectively freezing $300 billion in Russian assets held in the West.
• According to the Credit and Collections survey, 33% of credit managers attributed payment delays to issues with the central bank.

Russia’s military spending in 2024 accounts for 35% of total government spending, according to the Wilson Center, equal to about 7.1% of its gross domestic product.

• The country’s economic growth relies on large-scale government spending on weapons production to fuel the ongoing conflict.
• According to Russia’s Centre for Macroeconomic Analysis and Short-Term Forecasting, around 60-65% of increased industrial output since 2022 is attributed to the war in Ukraine.

Russian industry evolved to support the war effort, but labor shortages still plague the nation with an unemployment rate of 3.2% in 2024. These shortages have only been exacerbated by the hundreds of thousands of war casualties and the mass departure of young people fleeing the country by the million. Among those fleeing are many educated and skilled workers, prompting a “brain drain” in Russia.

Go deeper: Russia’s war financing relies on energy exports, leaving the nation vulnerable, especially considering their reliance on the natural gas pipeline flowing through Ukraine. The deal that allows the natural gas pipeline to flow from Russia through Ukraine and into parts of Eastern Europe is set to expire at the end of this year. While Russian President Vladimir Putin supported continuing the deal, Ukrainian President Volodymyr Zelensky has expressed a desire to sever such ties with Russia. 

The expiration of this deal would hurt Russia’s oil and gas industry, which was already floundering after Europe’s reliance on Russia weaned as they began importing larger amounts of gas from Norway and the United States. In total, Europe’s gas imports from Russia have dropped more than 90%. Breaking ties with Russia led to the Gazprom Group, an oil and power corporation based in Russia, to lose $7 billion in 2023. 

The bottom line: The ongoing war, economic sanctions and labor shortages are increasing payment delays in Russia, posing problems for credit managers with customers in Russia. With the energy sector suffering, Ukraine’s decision to block the natural gas pipeline could further destabilize an already floundering industry.