More than half or 55% of Latvian companies have been affected by late payments to customers over the past year, and companies have been forced to accept unfavorable payment terms in order to maintain good customer relationships.
Due to the Covid-19 pandemic, invoice payment terms for some customer groups have been extended up to 5 times longer than last year, but customers are still delaying invoice payment for up to 20 days, according to a study published by the credit management company Intrum.
Half of the surveyed entrepreneurs admit that late payments have a large impact on the decrease in corporate liquidity – this is a significant increase compared to 2019, when it was relevant for only 15% of companies. In turn, 38% of companies admit that late payments threaten their survival. All these indicators in Latvia exceed the European average.
Slightly more than half (53%) of Latvian companies admit that the growing period of delay or the so-called “pay gap” is a major risk to sustainable business growth, which is 7% more than the European average. Late payments have significantly affected the business and hindered the company’s investments in strategic areas, such as hiring new employees, promoting innovation, expanding the range of products or services, etc.
“Although Latvia has so far had one of the shortest payment terms in Europe and, with its prolongation, we have approached the level of Western Europe, in the local context the consequences of late payment are worrying, especially for small and medium-sized enterprises with smaller reserves and reliable cash flow. This puts pressure on companies by reducing their liquidity and forcing them to look for alternative ways to free up cash resources. to survive, “comments Ilva Valeika, CEO of Intrum in the Baltics.
Threats to business development have encouraged Latvian companies to protect themselves more actively. Compared to last year, the use of debt collection has increased 5 times, and now a third of companies surveyed (30%) say they use debt recovery to protect themselves from late payments, while in 2019 only 6% did so. Companies have also become more active in using tools such as customer credit history checks, bank guarantees, and credit insurance.
To prepare for the economic recession, entrepreneurs plan to reduce costs, consider new loans more carefully, identify business segments that are particularly vulnerable to the crisis, and reduce the recruitment of new employees.
The study was conducted from 14 February 2020 to 14 May 2020 in 29 European countries. In total, 9,980 companies operating in 11 different industries across Europe participated in the study. 240 companies were surveyed in Latvia.
The study was conducted by Longitude, a company in the Financial Times group.
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