In the summer of 2014, OpusCapita investigated the outlook regarding companies’ lengthening payment terms in Finland and abroad. The gradual lengthening of payment terms is beginning to become quite a problem for companies: the working capital of many small companies is tied to their sold products and services, and in the worst case these companies may have to wait several months before the outstanding returns are repatriated from the buyer.
The long-term trend over here and abroad has been for payment terms between companies to get even longer. Only one quarter of the top 500 companies in Finland interviewed said that they paid for their purchases in under thirty days. Around one third of the companies that responded in Sweden, for example, made their payment within the same timeframe. For Finnish SMEs this means that the majority of business customers take their time when paying for their purchases.
Plans to extend payment terms also provide evidence that belt-tightening is taking place in Finland. Half of the Finnish companies who currently have payment terms of under sixty days were planning to extend their payment terms. On the other side of the Gulf of Bothnia only less than one third of respondents were planning the same. Respondents in Norway had no plans to extend their payment terms.
Lengthening payment terms are, naturally, a way for large companies to improve their financial situation. However, the companies may also come under pressure to do this from an international organization. Payment terms are also lengthening at the Finnish government. Annual purchases come to over EUR 20 billion, so tightening the deadline for these payments would naturally make a huge dent in the state treasury.
Will the SMEs be left to pick up the bill in Finland then? If we are even more keen than our neighbors to lengthen our payment terms, then what can we do to help Finnish SME entrepreneurs in this situation? It really looks like we will be in need of help soon.
The Federation of Finnish Enterprises’ latest SME Barometer Survey found that even though the business outlook had weakened, the need for working capital had increased overall.
We should also remember that SMEs have a significant impact on the economy, particularly as creators of jobs. According to the European Commission, SMEs have created over eighty percent of the new jobs in the continent over recent years.
Take my word for it, limiting the length of payment terms will not get rid of this problem – this type of regulation would be very hard to supervise, it would create huge expenses for buying companies and would, on the other hand, be ineffectual in international trade. Therefore, we must find solutions that tackle the problem from completely new angles, such as providing financing to suppliers.
Seventy percent of the large Nordic companies which responded to our survey had never heard of this kind of supply chain financing. Perhaps this will soon change, as large Finnish companies are very fair and have a genuine desire to support their own ecosystem and subcontractors.