Payment terms: A slight improvement but the plague is still there
This is an issue that poisons relations between businesses and constitutes a dark spot for the business world. Payment delays are the cause of business failures, and complicate life for small and medium-sized businesses as well as for very small businesses. The trend may soon reverse once the new law is in place.
In the meantime, the year 2021 has been marked by a decline, even if the level of payment terms remains a concern. The latest statistics delivered by Inforisk show an overall drop in customer payment terms of 10 days, bringing them down from 253 days in 2020 to 243 days in 2021, which corresponds to an 8-month delay, and this is the first time in 10 years that these customer payment terms went down.
These two years, 2020 and 2021, have been exceptional: they are marked by the repercussions of the Covid-19 crisis to which the Government, through the Economic Watch Committee, has set up an aid system and business loans that are conditional on the payment of suppliers. In any case, 2021 is also marked by a slight drop in the supplier payment terms by 6 days. Nonetheless, whether it is for customer or supplier payment terms, differences are noted depending on the size of the company and on the line of business. Moreover, large entities have a major advantage, a bargaining power sometimes going so far as to impose longer payment terms. According to Inforisk, large companies were paid faster, at 83 days compared to 95 days in 2020. On the other hand, given the balance of power, large companies pay their suppliers late at 92 days, even if there, too, a decrease (of 07 days) is noted. In this ecosystem, very small companies do suffer from the balance of power and the dictates of large companies. Customer payment terms have decreased by 10 days but remain at 243 days, and their supplier payment terms have dropped by 6 days, standing now at 130 days.
Overall, VSEs are often dependent on a few major customers and comply with the requirements of the latter to maintain their activity. VSEs can accept the payment conditions imposed even if these conditions are unfavorable, sometimes going so far as to grant “rebates” to get paid, despite the impact on their cash flow.
In the case of SMEs, a drop in customer payment terms is also noted between 2020 and 2021: minus 11 days, amounting to 115 days in 2021 but those customer payment terms still remain higher than the customer payment terms recorded in 2019. “Since 2014, we have noticed that customer payment terms have only increased by 17 days for this category of companies”, notes inforisk, adding that “SMEs have largely passed on the improvement in their customer payment terms to their supplier payment terms. Indeed, SMEs paid their suppliers at 105 days in 2021 versus 112 days in 2020”.
Khadija Masmoudi
