29-11-2022 11:38

Making sure late payments don’t squeeze your cash flow

For several years the economic climate has been favourable, demand for goods and services has been high and financing costs have been low. But now things have changed and many companies could face increased pressure on their cash flow. Read here what your company can do.
Businessmen reviewing data on digital tablet

Rising inflation, high energy prices and low consumer confidence

Inflation, interest rates and commodity prices are rising. According to Statistics Denmark, Danish inflation rose to 11.1% in September 2022. Consumer confidence is low, the first industries are seeing a reluctance among consumers and the effects of that reluctance are spilling over to B2B companies. There is an emerging trend that B2B companies face cash flow challenges, partly due to accelerating costs and demands for longer payment terms from both customers and suppliers.

Jesper Daugaard Faurby, who heads the Danish arm of Atradius, one of the world’s largest credit insurance companies, is also seeing the signs of a changing economic situation with more and more companies facing cash flow pressures:

“The number of claims filed with us is growing. We have seen an economic deceleration that is a predictable result of rising prices and interest rates and the overall heightened worries over the future among consumers. If this pattern follows the trend we have seen historically, more and more companies across industries will face challenges.”

When more industries are under pressure and customers stay away, it becomes harder to pay suppliers. And more customers will pay their suppliers later, too late or not pay them at all.

Solutions to ensure payment

Loans, credits or changed payment terms from their own suppliers can improve a company’s cash flow. These are familiar tools. There are also solutions which generate cash and mitigate the impact of too late payments on cash flows. But fewer people know about these options.

At Nordea Finance, Rasmus Storm Bigum, Head of Receivables Finance in Denmark, says that many companies are not sufficiently aware of the alternatives.

“Many companies don’t know that with factoring solutions, they can borrow against their customer invoices or let us purchase them and get as much as 100% of the invoice amount immediately when they invoice the customer. The company receives payment sooner, but another advantage is that the risk of loss in case of non-payment is reduced. Either because we buy the invoice and the risk then passes to us. Or because we use credit risk insurance with up to 90% cover via for example Atradius if the company borrows against the invoices.”

Many companies don’t know that with factoring solutions, they can borrow against their customer invoices or let us purchase them and get as much as 100% of the invoice amount immediately when they invoice the customer.

Rasmus Storm Bigum, Head of Receivables Finance in Denmark

Tips for getting credit risk cover

In terms of hedging the credit risk in the current scenario, Jesper Faurby explains that the playing field has changed for many companies:

“We expect that central banks will continue to raise interest rates or as a minimum keep rates on hold until inflation is under control. This means that the operating conditions for most companies have changed, so it can be difficult for us to make credit assessments based on historical data.”

Jesper Faurby has some tips for companies facing cash flow pressures and wishing to hedge their credit risk by means of an insurance policy:

  • Make sure you have updated key figures. The latest annual financial statements are no longer enough.
  • Stay in close contact with key customers and suppliers. Keep track of their business.
  • Be realistic about forecasts.
  • Be open about how things are going. Being transparent creates confidence and often a greater willingness to find solutions among customers, suppliers and credit insurance companies.

Needs and solutions must match

Rasmus Storm Bigum adds: “We have a range of solutions at Nordea Finance we can use, but what makes sense is an individual assessment. So the easiest thing is for the customer to call us. Then we can have an initial talk and find a factoring solution to match their situation.”

Taking timely action

Do you have cash flow worries or need advice on how to strengthen your cash flow?
Our specialists are ready to help.
Contact your adviser at Nordea to hear more.

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