The risks of unpaid invoices within the supply chain are on the rise
According to a recent insolvency index assessment, many companies are facing difficulties due to delayed payment of their receivables. This problem is a consequence of the rising number of insolvencies, which traditionally manifests with a certain time lag. Several factors contribute to this situation. One is significant inflation, which causes costs to rise and complicates financial planning for businesses. Increased interest rates. Rising energy prices place an additional burden on companies, especially those dependent on energy sources. The labor market also has an unfavorable impact, leading to wage growth and limiting labor availability. These factors combine to create a challenge for many businesses.
Protect your company
Receivables constitute a significant portion of company assets, often up to forty percent of a business's total property. Non-payment of these receivables can severely disrupt cash flow and expose a company to the risk of secondary insolvency. This is particularly problematic for small and medium-sized enterprises.
Companies have the option to protect themselves from the risk of unpaid receivables by insuring them. If a debtor fails to pay a receivable on time, the insurance company will pay it and then seek to recover the debt. This type of insurance is available not only for standard supplier-customer relationships but also for securing one-off and long-term projects and deals. Although companies often carefully insure their tangible assets, receivables are typically overlooked, even though most businesses have negative experiences with unpaid debts.
Vet your suppliers and customers
In the Czech Republic, companies often seem to accept that sometimes someone won't pay and prefer to write off the receivable rather than deal with the problem further. Abroad, companies are more willing to insure their receivables and simultaneously adjust their business model based on information about their customers' financial stability. This might include shortening payment terms or requiring partial upfront payment. This practice is not widely adopted in the Czech Republic.
It's also important to watch out for scams. A smaller company might receive an order from a company posing as a representative of a large foreign corporation, requesting goods worth millions of Czech crowns. The small company, excited by the large order, sometimes delivers the goods without sufficient verification, only to find out later that the order was fraudulent and the goods were never paid for. It's crucial to be prepared for these potential risks. If you need advice, don't hesitate to contact us. We are here for you. Eurovalley.
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