Ilva Valeika: Late payment trend: are we just thinking about our ‘gnocchi dish’?

Payment culture can tell a lot about a person as well as a company. It could be said that the way a company treats its customers and business partners is part of building a reputation and a brand. But are Latvian businessmen in good faith and practicing sustainable payment practices? After “Internal“According to data from the latest European Payment Report 2022, we see that 40% of Latvian companies pay their suppliers later than they would ever accept from their customers, which indicates some kind of double standard.

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You might remember the once popular dumpling commercial, where the kid looks at his friend’s plate and says “if I had gnocchi, I’d share them with you.” The difficult conditions of the past two years – the security measures to contain the pandemic, the war in Ukraine caused by Russia, the increase in the prices of energy resources, as well as the currently rapidly growing inflation – have put a lot of pressure on business in the as a whole, logically leading to the fact that every entrepreneur primarily thinks more about the financial circulation of his company or about your plate of dumplings. This is also indicated by the comparison of the report data with the previous year, when only 29% of companies made payments to suppliers at a later time. This is a sharp increase in one year, which marks a major trend in the payment culture.

Regular financial circulation makes it possible to plan and invest in the development of the company, thus contributing to the overall development of the business environment in Latvia, but many challenges force them to look more often only at the operation of their own company, asking to extend the payment terms .

The negative impact of late payment to suppliers is greater than it might seem at first glance. Companies that are not paid on time are also unable to pay their bills to their suppliers on time, ensure timely payment of salaries to their employees, as well as other regular monthly payments, thus creating an inevitable chain reaction that results in more and more companies suffering. However, while the majority of Latvian companies (89%) have suffered and suffered the consequences of late payment on their skin, only just over half (54%) are taking concrete action to promote timely payment of invoices.

The development of guidelines on how the company manages the various internal processes allows for sustainable development and the identification of the necessary areas of attention. For example, if making payments on time is a major challenge for the company’s customers, you need to attract additional resources to better solve this problem. Timely reminders for payment of invoices, as well as outsourcing the processing of overdue invoices to debt collection companies without waiting for debts to accumulate, are more common approaches. We can see from our practice that housing management and utilities companies, which objectively have the largest number of clients, including those who are in arrears, are currently thinking about this more actively. It is also popular with Latvian companies to offer a discount as an alternative to late payment or add a premium for a later payment date. A growing number of companies are also developing codes of ethics, regulating the culture of payments within the company: 30% of companies in Latvia follow this practice and 50% of companies plan to implement it in the near future.

To avoid unpleasant situations of late payments, the company must seek new ways to efficiently manage its financial commitments, both by receiving timely payment of invoices from debtors, and by ensuring timely payments to its cooperation partners.

By finding the most effective way to promote compliance with payment deadlines in a timely manner, companies will protect both themselves from disruptions to financial circulation and their cooperation partners from potential liquidity risks. Although the current financial conditions are difficult, every entrepreneur should also think about his influence on other entrepreneurs and the industry as a whole in the name of sustainable development, or how to divide his “plate of dumplings” equally before all the dumplings. have cooled down and the cream is gone.

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