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Late payments hamper growth

Market conditions, financing and late payments a thorn in the side of European businesses, according to experts.

Economic activity in the European Union is showing signs of slowly picking up, spurring companies to ponder expansion and possibly new hires. But while global markets are awash with capital and interest rates are at record lows, in some cases even in negative territory, small and mid-sized businesses (SME) looking for capital may face a starkly different reality. 

-Market conditions and demand are key to SME’s willingness to expand and take on more employees and the positive economic trend, although fragile, we see in Europe is welcome. At the same time there is a lot of uncertainty which make many companies hesitate, says Cecilia Hermansson, assistant professor at The Royal Institute of Technology in Stockholm (KTH) and former chief economist at Swedbank.

Multiple conflict zones around the world, declining and erratic oil prices, migrants flowing into Europe and an uncertain political landscape with events like the UK referendum June 23 on whether to stay in the EU, all contribute to making even near future prospects hard to asses.

-The cost of borrowing is not a problem, rates are low, but some SMEs can find it hard to get loans as banks are not as willing to lend to SMEs as would be desirable. Many European banks are still suffering from the finance crisis which restrains their lending and in addition I believe they sometimes find it hard to understand new types of businesses and their needs, such as investing in new technology to keep up with competition or investing in less tangible assets such as brands, ideas or human resources, says Cecilia Hermansson.

Another factor weighing on European SME’s financing are late or delinquent payments which by many is seen as a drag on expansion. In Intrum Justitia’s European Payment Report for 2015 almost a third of the surveyed businesses say that faster payments would enable them to hire more staff. Also, one in four companies said late payments contribute to the need to lay off staff.

-The response from the survey is quite clear – late payments hamper growth as companies lose control over their cash flow, says Annika Billberg, head of sales, marketing and communications at Intrum Justitia.

For especially SME’s, late payments mean that they would have to drastically increase their operating capital or have extensive credit lines to cope with the situation, something which is not available for everyone.

-For a small consultancy with perhaps 20 employees, having a major client stalling payment for few months can wreak havoc with their finances, says Annika Billberg.