… and there is a trend of increased late payments + € 698m + 4% Increase in Gross Overdues reported in 2019 compared to 2018… … corresponding to a 4% increase in Gross Overdues On an aggregated level, Gross Overdues have increased by EUR 698m in 2019, or +4%. Where the increase is + EUR 737m for Net overdues and – EUR 38m for provisions. The ratio of overdues over Account receivables has slightly increased by 0.3%, suggesting an upward trend in credit risk. But the difference between the changes in net overdues and in provisions seems to indicate that this trend is driven by increased late payments, rather than bad debts. 1. Managing and tracking Account receivables is crucial for ensuring sufficient liquidity to meet future business needs, i.e., to avoid credit losses, a shortage of cash and limit the need and cost for borrowing Receiving payments from customers for goods and services sold is of course vital for a company in order to proceed with its operations. Not receiving payments from customers is a credit risk for the company and if the non-payments are too high the company will ultimately face bankruptcy. It can also be argued from a moral perspective that the two parts in a trade agreement should honour the stipulated terms and conditions, as these are mutually dependent when settled. Lastly, from the selling company’s point of view it might be considered that the risk of a nonpayment is low, assessing a low credit risk, and as long as a payment is only overdue a few days it is not such a big issue. But we will argue that it is! A high level of late payments and consequential uncertainty surrounding the time of payment have an immense impact on a company’s cash flow, cash transparency and liquidity risk. An improved and stable cash flow will strengthen a company’s long-term competitiveness, improve resilience at times of economic downturns and free up resources for growth and other value creating investments. This would in turn lower the financial risk and the need and cost for both cash on the account and for utilized and approved bank loan facilities. This is obvious at present time, while living in the midst of the consequences of the Covid-19 pandemic, with major effects on businesses and disrupted supply chains all over the world. Finding ways of maintaining liquidity in the light of reduced cash flows and minimising trade risks are essential steps in ensuring businesses can maintain its stability during these challenging times.
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