What effect can late payments have on small businesses?

In partnership with The European Commission
What effect can late payments have on small businesses?
Copyright euronews
By Andrea Bolitho
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Business Planet speaks to Véronique Willems, the Secretary General of SMEunited, about the challenges that small businesses can face when dealing with larger companies.

Chasing late payments costs European businesses €275 billion. One in four bankruptcies in the continent is down to such delays. And there is a domino effect: every late payment causes another four.

But it is not just late payments that make life difficult for firms. Although not technically illegal, overly long payment terms also undermine investment, cash flow and salaries. The revised Late Payment Directive will aim to ensure terms can be agreed on a fairer basis.

Véronique Willems is the Secretary General of SMEunited, an association of crafts and SMEs in Europe tells Business Planet about the challenges that small businesses face in dealings with larger companies.

“In business-to-business agreements, there are often imbalances in the power between the client and the supplier," she revealed. 

"So when a bigger company is the client, we sometimes see that they are seduced to put in place a bit of a longer payment term towards their smaller suppliers, that way providing them with a bit more cash flow working capital.

"But that has a negative impact on the smaller company who not always has the strength and the power to discuss that with their big client.

"Often a small company has 50, 60, 70 per cent of their turnover depending on one of the big customers, and then you are not really inclined to tell your client ‘hey, I want to get a quicker payment’ or even go to court, which would be even more difficult for them.”

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