Europe announces relief package to keep SMEs afloat

The European government has announced a relief package for SMEs to deal with with high prices and late payments, but these measures may not be enough to bring their cash flows in order.

About 25 million European SMEs employ almost 100 million people and are the backbone of the industry and economy.

After suffering the pandemic, SMEs are now affected by soaring energy prices, inflation, and supply chain bottlenecks.

Hence, to support SMEs, President of the European Commission Ursula von der Leyen has announced an SME “Relief Package” which targets at least three key areas.

1. Combating late payments once and for all

2. Making it easier to do business in the Single Market

3. Facilitating access to finance and skills

Combating late payments once and for all

Late payments put the liquidity of SMEs, and sometimes their existence, at risk.

One out of four bankruptcies in Europe is due to invoices not being paid on time.

Late payments also hinder SMEs from investing in their sustainability and hiring more employees.

Even though the EU Late Payment Directive has been in effect for more than ten years, less than 40% of payments are made within the contractual deadline.

Hence, it plans to revise the Late Payment Directive to provide SMEs with a modern and strong legal framework which could include looking into setting caps for B2B payments, stronger enforcement with sanctions and monitoring obligations, providing SMEs with effective dispute resolution and mediation tools, preventing abuses and unfair practices.

Making it easier to do business in the Single Market

For European SMEs, the administrative burden is still a key problem. A large firm typically spends €1 per person to comply with a regulatory duty, a medium-sized business typically spends €4, but a small business spends up to €10.

To lower administrative expenses, the government will remove complicated procedures and provide a single rulebook to operate.

It will also introduce a single set of tax rules for doing business in Europe.

Additionally, it will launch an SME-friendly platform that will serve as the Single Digital Gateway that will include all the information needed for doing business.

Facilitating access to finance and skills

The government is providing support to SMEs by guaranteeing loans availed by them under the InvestEU scheme.

It aims to mobilize over €370 billion in investment, and the call under the SME window of InvestEU is already oversubscribed.

But at the same time, the government is asking SMEs to be cautious in borrowing as interest rates are expected to rise and economic conditions are expected to soften.

For attracting skilled employees, the government will help SMEs through their available tools such as the Pact for skills, digital crash courses, digital volunteers and others.

How should European small businesses deal with the situation?

Small businesses tend to have smaller cash cushions than big companies and generally are the first to experience the consequences of a recession. With diminishing optimism, SMEs need to take steps to prioritize their working capital, especially accounts receivable, in order to bring their cash flows in order.

In addition, internal invoicing processes and maintaining customer relationships are also crucial to survival.

At RIABU, we have developed a concept called the Virtuous Revenue Cycle (VRC), which is discussed in our book Let the Cash Flow, focuses on continuous improvement in service culture, findings ways to delight customers by anticipating and responding to their every need, and ensuring that you get paid on time.

The VRC includes understanding mutual expectations through written credit policy, proactive customer service, and engaging the whole team to identify and resolve unmet customer expectations and assure timely payment.

We believe that by taking an active and pre-emptive approach towards managing cash flow, SMEs can greatly improve their odds of surviving and thriving.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com