Trade credit needs a boost, says report

ACCA in its last installment of a report on late payment, known as “Ending Late Payment”, clearly stated that change is required from officials of SME financing on the way they manage and control late payments and trade credits.

As per ACCA, policy makers of government and its officials have a strong responsibility to make a balanced financial infrastructure under which they are able to minimize the concept of late payment and boost trade credits around the globe.

ACCA stated that this requires to be improved as early as possible because late payment has been seriously damaging the overall business. The damage is higher in small business as compared to large corporates. According to an estimate this issue is double in small businesses.

ACCA’s policy advisor for global SME, RosanaMirkovic said that delayed payment is a part of business life and is a type of a credit. In a perfect world, late payment presents a controllable risk to organizations.

He continued to argue that there is a need to re think the habits of late payment. Policymakers by improving effectiveness and efficiency of the courts can encourage the people to avoid late payments and provide an easy access to trade credit.

The report highlights how buyers and suppliers can improve this situation, by interacting with each other more closely and by improving client / customer relationships. From buyer’s perspective, they can protect themselves by fulfilling the clauses of contract and from supplier’s point of view a pattern of due diligence should be followed.

Following are few conditions that are required to be met in case of trade credit is to be made sustainable:

1. There should be clear and unbiased information in agreement between buyers and suppliers.

2. All the invoices should be monitored until the payment is cleared.

3. The cost and results of providing credit to buyers should be kept in mind by suppliers.

4. Both the parties need to build a relationship of understanding, integrity and honesty.

5. Both the supplier and customer should inform each other on timely basis in order to avoid from any unacceptable events

6. Businesses need to improve their internal structures related to disputed matters that could result in late payment.