SMEs in Ireland and the UK are more likely to use trade credit than their counterparts in other European countries, new research has found.
According to a working capital benchmarking study of European SMEs undertaken by accountancy firm Mazars, nearly two-thirds (64%) of Irish SMEs rely on trade credit. By comparison, just 17% of SMEs in France and 15% of SMEs in Germany reported using this form of credit during the previous six months.
Meanwhile, 60% of UK SMEs had used trade credit in the previous six months – which is nearly twice the Europe-wide average of 32%.
The study revealed wide-ranging differences in attitude to debt among European SMEs. For example, it showed that UK SMEs had used bank overdrafts, credit lines and credit cards more often than their European counterparts during the previous six months.
Nearly half (45%) of UK SMEs reported using credit facilities like these, compared with an average of 39% across Europe. SMEs in Ireland were the most likely to use this form of credit (60%), compared with just 7% of Swedish SMEs.
The findings, based on detailed information provided by Mazars’ clients as well as extensive EU and national level research, also revealed that the average number of payment days across Europe varies considerably.
While SMEs in Sweden currently report an average of 35 payment days – the lowest number of all the countries surveyed – this number jumps to 44 days for SMEs in the UK and even higher, to an incredible 97 payment days, for SMEs operating in Spain.
The report suggests that some European SMEs will need to focus on improving working capital management, since late payments can cause significant financial problems for small businesses and create an extended need for financing.
Commenting on the findings, David Smithson, UK head of SMEs at Mazars, said: “SMEs should ensure that their working capital policies and procedures are both rigorous and carefully controlled. They also need to have clear guidelines on how to accept or reject new customers, and must focus on areas such as price negotiation and credit terms in order to reduce the prospect of excessive bad debts and cash flow difficulties.”
Sally Percy is editor of The Treasurer