The challenging economic situation is punishing companies in Finnish and international competitive arenas. The significance of working capital is rapidly increasing for companies’ competitiveness as additional costs must be avoided and companies must also be able to make investments whenever required.
Boosting cash flow is definitely not a matter that is confined to the financial management’s domain, it is hugely important for the agility of the entire company.
At the same time companies are continuing to extend their payment terms. Suppliers are often just given these even longer payment terms, so there is little room for negotiation. These longer payment terms endanger the liquidity of SMEs in particular, but in reality also create challenges for large companies. Playing the waiting game is expensive and, when all is said and done, the increased importance of working capital puts a strain on the entire supply chain.
Many countries have woken up to the payment terms challenge, and capping the length of payment terms, for example, has been discussed in Finland. Legislation to limit the length of payment terms, which, at first, sounds like a simple solution, will not ultimately solve the challenges for export companies, as it would increase costs for large companies, and the government for example, and its supervision may also be very challenging to implement.
The problem has been solved in a completely different way in Spain, the Netherlands and the UK, for example. A supplier financing model has been in use in these countries for years. The model tackles the problems caused by lengthening payment terms by providing reasonably-priced financing for suppliers, which is guaranteed by the better credit rating of the buying company. The supplier financing model approaches the payment term challenge from a completely new angle and, what’s more, in a way that benefits several parties.
We need to be on the ball in Finland: future success does not come from increasing restrictions and regulations but by seeking new types of solutions that can be used to support the competitiveness and agility of companies. This will not happen by observing for years what happens in other countries, but by boldly setting out to reap the benefits of new opportunities and by turning challenges into victories. Playing the waiting game is far too expensive.