Business News

The recovery position

By Business & Finance
06 December 2016
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There are comments that economies are recovering, revenues increasing – but not everyone is feeling the recovery. Mark Chandler reports.

There are some industries more than others where credit management performance is showing improvement as those wanting products and services that might be new to the industry are paying to terms and conditions, but those businesses that have worked hard to be sustained through the recession are not gaining from new fresh credit.

Are the larger organisations taking advantage, aware that SMEs want to be associated with the brand?

So with margins tighter and better controls in place, large firms are managing the cashflow better and average payment time frames has reduced to 38 days from last year’s figure of 42 days.

This also has a positive impact on reduced credit management staffing and related costs, which can only be good for a business.

CHANGING MINDSETS

With SME’s the challenge is still there: is it knowledge of how to manage it better, while also dealing with the risks of how seeking payment can impact future business, and being aware of reality over perception.

With average payments time scales of up to 71 days this cannot be good for the cashflow of SMEs, often forcing them to incur additional fees and charges as they use bank credit facilities to fund their business ‘waiting for payment’.

With businesses with turnover of less than €1m, one deal or invoice can have such an impact. It really isn’t until you see turnover in excess of €30m that it becomes more sustainable, but should it be acceptable?

Funding other people’s invoices is not cheap, and can impact staffing, morale, business expansion and impacts how can we change the mindset and behaviour.

SURVIVAL OF THE FITTEST

SMEs are always resource challenged and late payment just adds to this, often taking resource away from growing the business to working on activities to make the business survive. The financing of extended payment terms directly impacts profits and then directly the businesses ability to invest, expand, create employment and ultimately to survive.

The impact of late payment has seen more credit checks and credit insurance being taken out to reduce the potential impact to a business, though both of these are additional costs to the business

Introduction of the prompt payment code in Ireland, European laws to allow penalty fees and charges, government support and actions won’t solve the problem it really needs a change in culture and each business understanding how their trade and payments helps each other’s business grow, be more competitive and in turn create opportunity.

The SME impact and concern can often be perception driven, will this impact future business with that customer, but maybe the question should be do you want to do future business with that customer that is costing you and that you are not making any money on.

IMPACT OF LATE PAYMENTS

mark chandler

Mark Chandler, Intrum Justitia

Within Ireland, 38% of businesses stated that late payment was impacting additional employment opportunities, on average payment terms have increased and this though has driven longer payment time scales between businesses.

Across companies, 8.4% of invoices are outstanding more than 120 days and losses average 1.8%. This has a significant impact to the cost of future goods and services that companies can deliver.

The biggest impact to payment, whether perceived or actual, is disputes regarding the goods and services delivered, where all other areas including customers in financial difficulties.

The impact of late payment has seen more credit checks and credit insurance being taken out to reduce the potential impact to a business, though both of these are additional costs to the business.