June 17, 2015

Lengthening Payment Terms Challenge Nordic Companies

by Accounts Payable Optimization, Accounts Receivable Optimization, Finance Centralization, Industry Trends and Technology, Cash Management, Payments and Financing

The global trend of lengthening payment terms between companies is increasingly affecting the financial situation and operating capabilities of Nordic companies. What one gains, the other loses: large purchasing organizations benefit from the longer payment times which release needed assets, whereas smaller suppliers struggle as their working capital is tied to sold products and services.

A recent study by OpusCapita reveals that the situation isn’t getting easier. Companies who took part in the survey in Finland, Norway and Sweden mentioned negotiating longer payment terms with suppliers as one of their main measures planned to optimize their working capital.

However, there are differences between the countries’ current situations. Over half of the big corporations who responded to the survey in Finland and in Sweden said that they had already extended their payment times. In Norway, less than one fifth of the companies had so far done the same.

Small and medium-sized companies, especially in Finland and in Sweden, are feeling the pressure from purchasing corporations to extend their payment terms further. 76 percent of the Finnish and 57 percent of the Swedish respondents stated that their clients try to negotiate longer times for payment. In Norway, 40 percent of the respondents reported the same.

On the other hand, the small and medium-sized companies also reported changes in payment behavior. Almost one fifth of the companies in Finland and in Norway said that the number of reminders that they send has increased. In Sweden, one in four and in Norway, one in three companies stated that their clients’ payments are delayed occasionally or regularly. In Finland, as much as 82 percent of the respondents said that their clients didn’t follow agreed payment times.

Late payments put a strain on companies

The survey results confirm what we heard in our discussions with Nordic suppliers. There is constant pressure to agree on longer payment terms, but payment discipline has also weakened and companies have to increasingly deal with late payments. This puts a real strain on the cash flow and operating capabilities of the companies.

The companies emphasized the importance of the availability of financing. 64 percent of the respondents in the survey said it is either extremely or very important to the overall success of their company. Supplier funding, factoring services and other alternative financing solutions were high on companies’ agendas when they considered things that would impact their financial situation.

Companies are reasonably well aware of the different financing alternatives, but they also feel that many of these financial instruments are difficult or too expensive to use. New, flexible solutions are needed to meet the payment term challenge in a way that is in the interest of both the purchaser and the supplier and helps improve the overall competitiveness of Nordic companies.

287 financial decision-makers from small, medium-sized and big companies in Finland, Norway and Sweden responded to the survey. TNS Gallup carried out the survey in December 2014 and in March 2015. The survey was commissioned by OpusCapita.

Read more blog posts about Payments and Financing