According to recent figures, average payment arrears throughout Europe now stand at 53 days. When supplier terms are taken into account from low-cost areas such as the Far East and Asia, the funding gap for businesses can extend well beyond 120 days. This can cripple cash flow for European businesses which in turn can have a negative impact on profits, expansion and their overall existence.
Tracey Davenport, Relationship Director with a leading European commercial bank, encounters this on a daily basis. “You’re seeing shorter payment terms and longer terms for debts remaining unpaid throughout the UK and Europe. One of the biggest assets for most businesses is their debtors, but most High Street banks continue to offer little support for funding European debtors. With businesses expanding their markets every day, companies understand the advantage of having a cross border commercial finance partner to assist their business plans going forward.”
Many factors are driving companies to outsourcing their European accounts receivables. Pending Basel II regulations have made commercial banks more alert to risks. When providing credit, commercial banks are attaching increasing importance of proper risk management by companies. Considering that 25% of unpaid bills are never collected, insolvency of a foreign customer difficult to determine and national laws difficult to comprehend – businesses continue to source providers with specific country expertise to deliver commercial finance solutions.
Mr Davenport commented, “Companies which are expanding rapidly or businesses which struggling with managing cash flow need to consider this option or risk being passed by the competition. They may be good at product development but don’t necessarily have the systems in place to manage their accounts receivables. The old expression that ‘Cash is King’ has never been truer – when a business is fully leveraging all their debtors, they are in a position to negotiate better supplier terms along with reducing other financial obligations putting the company in the position to expand and grow.”
Commercial finance providers can offer a range of bespoke solutions to match your particular requirements. If you are a well-established business with strong systems and procedures, you may prefer to retain control of your sales ledger in-house. Alternatively, if you are a fast-growing young enterprise, you may benefit from the complete outsourcing your credit management process reducing time and the cost of having a dedicated in-house resource. For an established exporter or a business considering branching out overseas, a commercial finance solution could help to alleviate the adverse effects of extended payment terms and through an international provider provide information on your overseas debtors’ credit worthiness.