The ongoing Eurozone crisis is starting to impact on small and medium businesses, affecting cash flow and business confidence across the board. Whether your business deals with European suppliers or exports goods to the continent, there are increasing pressures on all types of SMEs that are being worsened by the financial state of the Eurozone.
Suppliers based in Europe are increasingly demanding up front payment for their goods, themselves trying to remedy late payment which is a huge drain on cash flow. Many export customers are guilty of just that, delaying payment often for months. These two factors pull SMEs in two different directions, making their task of staying afloat and with healthy cash flow even harder.
Data supplied by Western Union has shown that European customers are increasingly waiting to pay until the end of the month, looking for better exchange rates. In the first quarter of 2012, on average 31% more currency exchanges were made during the final five days of the month than those made in the first five days – this is more than double what is considered a normal level.
There’s also a huge reluctance to place large orders, with European companies not wanting to hold a lot of stock due to uncertainty of where their market will be. Many companies are also leaving longer between orders as it is taking longer for them to shift their stock.
If your business deals with Spanish suppliers. Where it has been the norm for them to issue payment terms of 30 days, now it is becoming common to ask for 30% payment upfront with the remaining 70% to be paid on the arrival of the goods. This is due to Spanish banks pulling credit from many businesses, making cash flow even tighter.
Though exporting has been hailed as a good opportunity for small businesses to grow, expand and start to recover, there are many pitfalls caused by the ongoing financial turmoil on the continent. Whether your business deals with suppliers from Europe or sells overseas, it’s probable that you’ll start to feel the bite of the Eurozone crisis as well.