SMEs in Eastern Europe concerned by late payments and economic instability

A survey by trade credit insurer Atradius about payment practices in East European companies highlights a stable business environment and fewer bankruptcies in 2022. But, of course, this was before the Russian invasion of Ukraine. And even then, digging deeper into the report reveals that small businesses are more worried than larger ones, especially those involved in the cross-border trade.

Want to know more about this topic? Listen to RIABU's Simon Littlewood and Mark Laudi discuss this issue on our podcast, Be First In Line To Get Paid:

The participants in the survey included 1,400 large and small companies from seven countries — Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, and Turkey. The survey covered key metrics like write-offs, overdue invoices, and business expectations.

As SMEs employ most of the working population globally, and contribute significantly to the economy, it is imperative to understand their business expectations. And in the case of Eastern Europe, this survey highlighted that 44% of SMEs were paid late, and they wrote off 7% of their invoices in the previous year. In fact, 45% of SMEs spent more on sourcing external financing to manage their cashflows.

Looking ahead, 46% of SMEs expected no change in their Days Sales Outstanding (DSO), and only 16% expected DSOs to improve in the current year.

When asked about the health of the domestic and global economy, 56% of these SMEs expected pandemic-related problems to continue while 46% were concerned about their domestic economies.

About 43% of surveyed SMEs were worried about a prolonged downturn in the global economy. In addition, 41% of these SMEs expected insolvencies to increase this year due to withdrawals of government support, especially for those involved in cross-border trade.

This is worrisome because an insolvency in one country can impact the supply chain in other countries and affect businesses along the way. Considering this challenging environment, SMEs need to take steps to prioritise their accounts receivable.

Accounts receivable comprise invoices which have been produced for goods or services that you have already provided to your customer, but which have not yet been paid and is measured in terms of days of sales outstanding (DSO).

In the book Let the Cash Flow, RIABU advocates breaking down DSOs into “terms-driven” and “process-driven” components, each of which must be treated differently.

For example, if you have credit terms of 40 days, but your DSO is 50 with a single customer, then 40 days of your DSO is “terms-driven” and 10 days is “process-driven”. The latter is in your control and your customer should have paid you so that you have a DSO of 40. If you have multiple customers with different terms, then a weighted average measure is required to calculate your terms-driven DSO.

The harsh truth is, unless you actively manage your receivables, you will find your company being owed more and more money.

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