A recent survey by Credit Management Services business ‘Intrum Justitia’ found that 58% of SMEs surveyed across Europe are having to allow customers extensions beyond agreed payment terms, up from 37% in 2016 – suggesting the EU’s Late Payment Directive introduced in 2013 as somewhat ineffective.
The Late Payment Directive was introduced following research which revealed that across the European Union, thousands of businesses were entering into insolvency proceedings whilst waiting for invoices being paid, and having a negative impact on the economy.
In the report from Intrum Justitia, it also found that 1 in 3 businesses had to either slow down, or stop their growth completely due to late payments and the impact on working capital.
Whilst the rise of alternative finance, and additional finance products available are helping businesses bridge the gap between when they should receive payment, and when they are actually being paid, however there are many businesses who are yet to understand how funding products are able to assist them, therefore leaving them potentially exposed during this period.
Funding options such as invoice finance are able to assist businesses bridge this gap in cash flow, and can be implemented quickly to ensure continuity. Invoice finance for example, is very flexible, allowing the business to choose which invoices it applies the facility to in some instances.
Other research, carried out by Zurich, found that in their SME Risk Index, 1 in 5 businesses are owed more than £25,000, with almost 10% owed more than £100,000 – taking a significant toll on business’s working capital and ability to fund new projects.
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30 September 2019
As with your personal credit rating, your business credit rating should be something you consider regularly. A poor credit rating could impact your ability to raise finance, the credit terms you’re offered, or even the suppliers that will deal with you.