Consulting. Supplier Finance: An alternative source of financing?

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1 Consulting White Paper Supplier Finance: An alternative source of financing?

2 b-process, an ARIBA Company, is a European electronic invoicing leader, with a network of nearly 30,000 interconnected companies on its billmanager platform. Based on an unrivalled technological experience in secured P2P exchanges, b-process has created Invoice2CASH, the first Supplier Finance collaborative platform. ARIBA, b-process mother company, is a worldwide leader in collaborative commerce solutions. Mazars is an international, integrated and independent organisation, specialising in audit, accountancy, tax, legal and advisory services. Consulting Mazars can rely on the skills of 13,000 professionals in the 68 countries which make up its integrated partnership on the five continents. Mazars also has correspondents and joint ventures in 15 additional countries. Mazars is also one of the founding members of the Praxity alliance, which gathers 79 independent organisations and 28,000 professionals in 82 countries. The Consulting Teams from Mazars assist and advise the actors from public and private sector, in order to help them comply their organizations with their strategies and to succeed in their transformations, for a better global performance. Composed of professionals dedicated to financial, strategic and operational consulting, they combine sharpened domain expertise and meticulous understanding of the actual issues the organizations have to face. Over 350 consultants over the world, intervening within 20 offices, in the United- States, in South America, in Africa, in Europe, in the Middle-East, in Russia and in Asia, offer a collaborative approach, global and oriented towards the resolutions of the clients issues.

3 Editorial For the past twenty years or so, most international corporations have developed optimization programs in conjunction with supply chain. Considerable attention has been given to management procedures relating to suppliers and the flow of supply, where many opportunities existed for improvement and concurrent savings. This has produced results, so that today physical transactions between large buyers and their suppliers are organized in a highly efficient manner. This streamlining has brought about a significant increase in collaborative platforms linking buyers with their suppliers, in connection with electronic billing programs and, more generally, spend management programs. That is the context in which the notion of supply chain finance has emerged. Since the flow of goods, services and information with suppliers was streamlined, corporations have naturally sought to create value from the implied financial transactions. Following a detailed study, and based on our combined expertise in financial consulting and in billing flows, we now believe that Supplier Finance stands out as one of the best supply chain finance practices. Supplier Finance systems have successfully adapted to new business and financial conditions and, today, offer an appropriate response to the problems of both buyers and suppliers. Accordingly, we have felt that it would be pertinent to propose a detailed analysis of the principles and many opportunities of Supplier Finance as a worthy supply chain finance application, as well as to share our experience regarding key factors that must be taken into consideration in order to take full advantage of these ambitious and promising practices. We invite you to examine this paper, which we trust contains replies to all of your questions. Alexis Renard VP Ariba, General Manager b-process Hervé Blazejewski Consulting Partner, Mazars 3

4 Summary Supplier Finance: An alternative source of financing? Combining optimized working capital financing with improved security for suppliers by means of a collaborative Supplier Finance approach The objective of Supply Chain Finance has long been to take advantage of discounting potential not used by buyers. Today, corporations have found another use for it. What are the purposes of these new forms of Supplier Finance? First, corporations are looking for alternative sources of financing that do not impact their working capital needs. Second, they are most often called upon to help finance their suppliers needs, in a period of seemingly lasting economic instability. With cash scarce and costly, and in a period of structural change when banks tend to have increasingly restrictive prudential standards, can this new form of Supplier Finance help provide greater supply security and improve corporate resilience? The purpose of this white paper, which does not claim to be exhaustive, is to present a general outline of a financing system that deserves serious consideration in light of its potential contributions in terms of supply chain finance and purchasing policy by: (i) reducing risks in order to obtain better financial terms; (ii) offering an attractive financing option to all suppliers; and (iii) dividing benefits among all parties, based on the Supplier Finance program s objectives. Reducing risks, which is the underlying principle in Supplier Finance programs, makes it possible to significantly lower the cost of financing. That is why two essential factors must be taken into consideration, i.e. the financial health of the buyer and its ability to undertake to pay its bills. The program s financing costs accordingly become nearly equal to those of the buyer. Hence, the buyer can offer its suppliers financial terms that may be highly favorable if the suppliers borrowing rate is significantly higher. It goes without saying that interest rate differentials do not in and of themselves make the system compelling. The buyer must undertake to rapidly validate its invoices so as to provide for the earliest possible pre-financing. This in turn has an impact on management practices, processes and tools likely to accelerate the approval of invoices. The last principle undoubtedly is a key to the structuring process, as it gives the buyer the possibility of making its program equally effective in generating financial gains for the buyer and securing its supplies by helping its suppliers obtain financing at a reduced cost. 4

5 Summary One thing must be clear, however: a buyer cannot gain from both ends! Therefore, all Supplier Finance systems must be specially designed to satisfy the needs and expectation of buyers while at the same time limiting the risks inherent in this type of arrangement, such as the reclassification of trade payables to debt. Lastly, it should be noted that, thanks to significant technological advances, Supplier Finance arrangements are becoming fully collaborative. The increased popularity of automated electronic billing systems now makes it possible to take advantage of the instant availability of secure billing data. With the real-time validation of receivables and purchase-to-pay networks connecting buyers to their suppliers, they provide incentives for programs and extend the potential financing periods by automating the process of invoice recording and validation. 5

6 Contents Introduction 7 1. Supplier Finance, a system originally invented to generate financial gains In reaction to the recession, Supplier Finance becomes collaborative Supplier Finance is an increasingly attractive source of financing...8 Supplier Finance principles and prerequisites Supplier Finance is a simple concept Transferring risks from the supplier to the buyer The Supplier Finance life cycle The two prerequisites for Supplier Finance Interest-rate and revenue-sharing model Essential technological support for Supplier Finance Features required to operate a Supplier Finance program The three ages of Supplier Finance platforms...16 A promising market for collaborative Supplier Finance: Payment delays, worsening in the recession, continue to be common in most European countries Increased restrictions on bank credit leave corporations without the means to finance their working capital needs The financing of trade receivables no longer provides a fully adequate solution to current needs The growth of Supplier Finance in Europe...22 Supplier Finance, a collaborative approach to cash flows Supplier Finance: A strategy for optimizing working capital or for securing suppliers? Collaborative Supplier Finance: the benefits of a collaborative approach to cash flows...24 Setting up a Supplier Finance program Setting objectives for the Supplier Finance program Carrying out the Supplier Finance project Securing the Supplier Finance arrangement Rolling out of the Supplier Finance system Expanding the Supplier Finance arrangement Managing a Supplier Finance program s technological aspects...31 Conclusion 33 Methodology 34 Bibliography 35 6

7 Introduction Introduction Economic conditions that favor creative financial solutions 1. Supplier Finance, a system originally invented to generate financial gains Supplier Finance arrangements first came into being more than twenty years ago and were primarily intended to maximize discounting gains by major buyers of goods and services. The first Supplier Finance arrangements were aimed at maximizing the discounts extended by selected suppliers in consideration for the buyer s ability to rapidly approve payment for the goods and services supplied to it. Supplier Finance arrangements were first initiated in part for that essentially practical reason by major manufacturers (FIAT) and distributors (Carrefour), whose procure-topay processes are highly advanced and structured. Used mostly in Southern European countries, this kind of arrangement accounts for about 30% of aggregate factoring volume in Italy and 25% in Spain, two countries where payment periods are longer than in France. Starting in 2006, certain buyers saw Supplier Finance as a potential way of having their suppliers finance their own working capital needs, by significantly lengthening payment periods in return for financial collaboration negotiated by the buyer (payment of suppliers invoices in 90 or 120 days instead of 45 days). In France, such practices ceased in 2008 with the implementation of the Act on the Modernization of the Economy (LME), which limited the time allowed for paying suppliers. Paradoxically, interest in Supplier Finance did not diminish, as it provided buyers with a real opportunity to reexamine their organization and make it more efficient. Nevertheless, buyers in France initiated relatively few Supplier Finance arrangements aimed at stabilizing their working capital requirements, mainly because of the the risk that their trade payables might be reclassified to debt in the case of financing with longer terms than those allowed by the LME Act. 2. In reaction to the recession, Supplier Finance becomes collaborative The emergence of a new form of Supplier Finance has its source in the recession and the LME Act. Collaborative Supplier Finance no longer seeks just to maximize gains from discounting. This new form of Supplier Finance relies on the same technical approach, namely the negotiation with suppliers of a factoring arrangement. However, its purpose is now primarily collaborative. It seeks to secure the buyer s supplies, in particular from firms that are the most exposed to the effects of the recession. 7

8 This shift in the nature of Supplier Finance makes it now possible to consider the arrangement as a new component of supply chain finance, which adds a collaborative dimension to the financing of working capital by the buyer and its suppliers, through improved control of purchase-to-pay processes. The first collaborative Supplier Finance programs have now come into being, and differ from their predecessors in part by: the eligibility of a significantly larger number of suppliers; the discretionary right of suppliers to choose to join in the arrangement and to use the financing options as they see fit. Although there are still only a few of those new collaborative Supplier Finance programs, they are of increasing interest to major corporations that seek to improve their resilience under the prevailing economic circumstances. 3. Supplier Finance is an increasingly attractive source of financing For the past several years, banks have made it harder for businesses to obtain credit facilities. Bank prudential regulations, even more stringent since Basel III, are going to make it more and more difficult for the most exposed suppliers to have access to financing and further increase the cost of credit. Payment delays, which have remained relatively stable in France over the past six years, have considerably increased in Europe since 2008, causing the short-term working capital needs of businesses to worsen. Having to wait longer before they are paid and unable to obtain funds from the banks, corporations have been looking for alternative financing methods. In this context, collaborative Supplier Finance arrangements offering sufficiently attractive interest rates will become valuable sources of financing for economically sensitive businesses or those that can no longer increase their conventional credit facilities. Because they offer attractive rates, collaborative Supplier Finance arrangements are going to make it possible for both banks and buyers to make use of potential discounting sources, including middle market companies and small businesses. Financed by interest-rate differentials, effective collaborative Supplier Finance programs will primarily rely on: the use of technological platforms ensuring rapid execution and favoring collaboration between buyers and their suppliers; in this connection, existing electronic networks for the transmission of electronic invoices between buyers and suppliers can play a significant collaborative role; the requisite fair sharing of gains between the participating parties (buyer, financial institutions, suppliers and technological platform). Buyers who make use of this novel alternative payment system, and respect this fair sharing, will acquire an unquestionable and probably essential competitive advantage. It will help them get through the recession on better conditions and will lastingly improve the effectiveness and resilience of their supply chain. 8

9 Introduction Based on the notion that collaborative Supplier Finance can be a source of financial innovation and a practical way of improving corporate resilience during the recession, this white paper seeks to throw light on this innovative and still too little-known practice. The purpose of this white paper is not merely to simply explain Supplier Finance. It also seeks to suggest new areas that could be investigated to optimize the financing of working capital, bolster collaboration between buyers and suppliers and enhance corporate supply security. 9

10 Supplier Finance principles and prerequisites 1. Supplier Finance is a simple concept The Supplier Finance concept Supply chain finance Supplier Finance Reverse Factoring Three terms for the same concept Financing by a partner bank of approved suppliers invoices not yet due 2. Transferring risks from the supplier to the buyer Source: bprocess Mazars 2012 The fundamental principle in Supplier Finance is the transfer of risks to which a supplier is exposed from trade receivables (under conventional factoring arrangements) to that supplier s buyer. This transfer of risks covering all of a supplier s receivables from a major buyer brings the cost of financing those receivables close to cost of the buyer s short-term financing, provided that the buyer firmly and irrevocably undertakes to pay its bills to the financing party. That is why it is sometimes referred to as reverse factoring, where it is no longer the supplier that factors its trade receivables, but the buyer that factors payables to its suppliers. Supplier Finance is a sort of framework financing agreement negotiated by a buyer with its finance partners on behalf of the suppliers it wishes to include in the program. 10

11 Supplier Finance principles and prerequisites 3. The Supplier Finance life cycle Supplier Finance life cycle Buyer Issuance of invoice Due date: 60 days from billing date (Exclusive of immediate payments, Perben Act limits, etc.) 1 Validation of invoice with payment approval 2 5 Payment on due date Supplier Finance steps Conventional steps Supplier Bank Request to assign a receivable 3 4 Prepayment of the invoice Source: Mazars The supplier sends the buyer an invoice. 2. The buyer makes its invoices from suppliers firmly and irrevocably available on a technological exchange platform as soon as it approves their payment. 3. The supplier may, at any time, ask the bank to pay the buyer s invoices. 4. The bank prepays the invoices assigned by the supplier. 5. The buyer pays the bank on the due date shown in sales contracts with the suppliers enrolled in the Supplier Finance program. Flowchart of a receivable under Supplier Finance D1 Payment approval D10 Payment by the bank to the supplier D57 Payment by the buyer to the bank D60 Receipt of invoices Processing of invoices Period in which invoices are available on the platform Retrieval from the buyer s IT system Request for prepayment D10 + x Source: Mazars

12 4. The two prerequisites for Supplier Finance The transfer of risks makes it possible for the buyer to benefit from close to its own financing terms if it firmly and irrevocably undertakes to pay the invoices included in the Supplier Finance program. In order for suppliers to be paid as promptly as possible, the buyer must be in a position to make a firm commitment to settle invoices very shortly after receiving them from suppliers. In the absence of such a commitment, the prepayment terms may no longer be of interest to the suppliers. The first prerequisite therefore concerns the process from the delivery of purchased goods and services to the approval of payment, which must be rapid and dependable. In fact, certain kinds of purchases are less suited to Supplier Finance, such as when acceptance procedures are very complex or require time-consuming approvals. The second prerequisite concerns the difference between the discount rate applied to the Supplier Finance by the buyer and the rate at which suppliers can borrow funds: In France and elsewhere in Europe, the rate differential will essentially depend on the buyer s creditworthiness; In emerging markets, the differential no longer depends on the buyer s credit rating but on other market-related factors (e.g. the inflation rate). Whenever there is a wide spread between the rates charged to the buyer and the supplier, the arrangement will produce significant savings. Those savings may be divided among the parties, depending on the gains sought by the buyer. Interest rate spread between the buyer and the supplier Value opportunity Rate at which the supplier can borrow Rate applicable to the Supplier Finance program Rate at which the buyer can borrow bprocess - Mazars 2012 In the event that some suppliers do not satisfy the above prerequisites, it would of course be possible to limit the program s scope to specific suppliers or to adapt the terms to various purchase segments. 12

13 Supplier Finance principles and prerequisites 5. Interest-rate and revenue-sharing model The interest-rate and revenue-sharing model of a Supplier Finance program can be illustrated by the diagram below. Supplier Finance cost model Savings by the supplier Revenue for the supplier Δ2 Rate at which the supplier can borrow Marketing fee Revenue for the buyer Δ1 Rate applicable to the Supplier Finance program Financing fee Service fee Revenue for the bank Δ0 Benchmark rate (Euribor, Libor) Rate at which the buyer can borrow T0 Supplier s short-term financing Supplier Finance system Buyer s short-term facility Source: Mazars 2012 The model can be interpreted as follows: The buyer, alone, has a credit rating and creditworthiness that enable it to borrow at a low rate (T0, the interest rate charged to the buyer). When setting up its Supplier Finance program, the buyer selects one or more suppliers and one or more finance partners, with which it negotiates the best interest rates for its program; that rate, which is the rate at which the buyer can borrow, plus a margin of Δ0, is arrived at: by starting with a benchmark lending rate, such as two- or three-month Euribor or Libor; and adding the finance partner s margin, which may vary depending on its nature: if the financing is obtained from a factor, it may charge a factoring fee, a Financing fee and various management and administrative fees; banks often charge only a Financing fee, to which various expenses may be added. The buyer and the finance partner then determine the effective interest rate applicable to the supplier s receivables covered by the program and, in doing so, set the consideration paid to the buyer (Δ1). That consideration, which is not always payable, takes the form of a Marketing Fee paid to the buyer by the finance partner. That fee generally corresponds to a portion of the Service fee charged by the bank on financed invoices. 1 Annual fee charged for the duration of the financing. 13

14 The effective rate applicable to the suppliers is therefore T0+Δ0+Δ1, and the gain for the supplier is equal to the amount by which that rate differs from TF, the rate at which it could borrow from its own banks, and T0+Δ0+Δ1, i.e. Δ2. Under a collaborative Supplier Finance arrangement, it should be noted that interest expenses incurred by the program are paid to the financing party only if the supplier decides to finance the receivables it has elected to assign. The challenge consists in setting the cursor between Δ1 and Δ2: a minimum Δ2 would produce the highest benefits for the buyer but the arrangement would be of only relative interest for the supplier; a minimum Δ1 corresponds to a situation where the buyer forgoes benefits in favor of the suppliers it wishes to support during a difficult business period; finally, the cursor may of course be moved up or down depending on the kind of suppliers or the purchasing segments concerned. It should be noted, however, that there really is no standard interest-rate model. It is better to opt for an all inclusive rate, which is added to the benchmark money-market rate applicable to the program. This makes it easier for the buyer to compare offers by several financing parties, and is easier for the suppliers to understand. Concerning the fee paid to the technology provider, it is generally paid by the buyer and is most often a flat fee. However, it can vary depending on the number of suppliers in the program and the amount of financing provided. 14

15 Essential technological support for Supplier Finance Essential technological support for Supplier Finance There can be no Supplier Finance without technological support that provides for the flow of information between the parties. 1. Features required to operate a Supplier Finance program The principal purpose of a Supplier Finance platform is to connect the parties and provide for the free flow of information among them. Ideally, it should therefore include the following features: loading of the buyer s payment orders; automatic calculation of available financing; finance request screen for use by suppliers and for calculating financing charges; submission of finance requests to the bank and monitoring of replies; automatic issuance of transfer orders on the buyer s behalf, with all of the invoices coming due, whether or not they have been financed. However, the growing complexity of programs and the more frequent requests by buyers for transparence and independence make the following features increasingly necessary: tools for promoting the program with suppliers and following through on their enrollment; loading of all of the buyer s trade receivable documents, whether or not the invoices have been validated, in order to let each supplier access the complete records of its receivables from the buyer; availability of reporting statements that contain data usable by all parties; consolidated management of programs involving several banks ( multi-bank ) and automatic issuing of statistical data for monitoring the program. Lastly, electronic data acquisition services for invoices and the automatic validation of invoices play a key role in ensuring that the due date of factored invoices is sufficiently distant to make financing of interest to the supplier. In this connection, older Supplier Finance platforms may not include some or all of these features. 15

16 2. The three ages of Supplier Finance platforms Bank platforms Historically, banks have been the first to offer technological platforms to their buying customers and suppliers enrolled in programs. The features they provide, which are generally minimal, are used to share information required to operate and oversee Supplier Finance programs. The cost of operating those platforms is generally included in financial service fees charged to suppliers when they assign receivables. Bank platforms have limited flexibility, however. Thus, if the buyer wishes to work with a different finance partner or add new lenders, it is in principle charged extra fees for connecting to the platforms of those other entities and for applying the changes to its previously enrolled suppliers. The banks have become increasingly aware of the important role that of multi-bank platforms are being called upon to play in the future development of large Supplier Finance programs. Accordingly, they are seeking to make their technical solutions more accessible. Third-party multi-bank platforms In spite of the prevalence of bank platforms, the current growth of credit and the expansion of the geographical area covered by new Supplier Finance programs are giving rise to multi-bank arrangements. Under such programs, several banks participate in the effort to enroll suppliers and share the concerned buyer s risk exposure as well as the revenue generated by programs. Under the circumstances, it seems difficult to ask a buyer to connect to a different proprietary platform for each bank with which it does business. Doing so would make it impossible to effectively monitor the program as a whole. It would probably be unnecessarily complicated to envisage a syndication approach, in which the partner banks would agree to channel all transactions between the program participants through a single platform operated by the lead bank. On the other hand, it makes sense to have a multi-bank platform operated by a third party on behalf of all of the participants: The buyer is not tied to proprietary bank platforms. It can replace or add a finance partner at its discretion without having to change platforms. Furthermore, by fostering competition among the finance partners, the platform can sometimes help obtain more favorable financing terms. It also gives the buyer an exclusive link through which it can access all programs operated by the various banks retained by it. For the finance partner, a hub-type of platform can replace a costly system of pointto-point connections with each buyer, so that a single link can be used by the bank to communicate with all of its buyers, provided they are in turn connected to the hub. For all of the parties, a third-party platform means that rates can be posted in a clear and unambiguous manner. Costs are known from the start by the participating 16

17 Essential technological support for Supplier Finance parties. Compared with the bank platform system, this method involves a new party, who must be compensated, although that additional cost may have a very limited impact on the ability of the platform to attract suppliers, as: its cost merely offsets the operating cost of the bank platform; and it can contribute additional savings resulting from competitive bidding or the complimentarity sought by the banks. In actual fact, multi-bank platforms have been in existence for several years, although they have been a consequence of the market s growth rather than contributors to it. Three factors have combined to account for this unremarkable performance: The platforms have not helped deal with the two root causes of failure by Supplier Finance programs, i.e. the slow pace of enrollment by suppliers and validation of income by buyers. The promise made to banks that this would create value has thus far been insufficient to convince them to give up their proprietary platform model and use hubs that, still today, connect only a very limited number of buyers and suppliers. In order to remain profitable in a tight market, they charge high fees or sometimes conceal their charges by seeking to act as intermediaries in the relationship between the buyer and its banks. Purchase-to-pay platforms (P2P) A new type of third-party multi-bank platform seems to combine the features of its predecessors while limiting their shortcomings. First and foremost, a P2P platform offers a set of features that provide for the electronic and automatic processing of some or all of the steps leading up to the actual Supplier Finance transactions: orders, acceptances, billing and validation of invoices. These platforms have proved effective, with the largest among them being used by thousands of buyers and hundreds of thousands of suppliers and handling transactions totaling hundreds of billions of euros. Besides their multi-bank nature, the platforms can provide answers for all of the objections raised concerning conventional third-party platforms: A buyer s suppliers are already enrolled insofar as certain P2P features are concerned. It is therefore easy to notify each of them of a Supplier Finance program when they connect to the online account. For example, if a supplier issues invoices via the platform, it can be informed of the amount of financing that is theoretically available and the interest charged on it whenever it links up to verify the validation of its invoices by its buyer. The tools for accelerating the validation of invoices by the buyer are often already in place, including the automatic integration of billing data (paper invoices in digital format or tax-compliant electronic invoices), with the use of automated reconciliation engines combining the order, receipt and invoice, the implementation of manual invoice validation workflows, including for invoices not related to orders, etc. 17

18 The promises made to the bank regarding the hub are fulfilled because of the intrinsic size of the network of connected firms. Lastly, overhead costs are amortized over the full range of P2P services, so that it is possible to charge interest and fees that protect the interests of all of the parties and the economic fairness of the Supplier Finance system. 18

19 A promising market for collaborative Supplier Finance: A promising market for collaborative Supplier Finance: increase in payment periods and drying up of bank credit 1. Payment delays, worsening in the recession, continue to be common in most European countries The European authorities have long sought to regulate late payments for commercial transactions (European Directive 2000/35 of June 29, 2000 revised October 20, 2010). There is little coordination regarding the transposition of the Directive into the domestic law of various countries, although some progress is being made toward more uniform practices. Still, those regulations have not prevented payment periods from worsening sharply, with a peak reached in , and from continuing to be of major concern to all parties concerned. 16,0 15,5 15,0 14,5 14,0 13,5 13,0 12,5 12,0 11,5 Figure 6: Changes in payment periods comparison of France and Europe (in days delay) Europe France 16,0 15,5 15,0 14,5 14,0 13,5 13,0 12,5 12,0 11,5 11,0 dec-06 11,0 jun-07 dec-07 jun-08 dec-08 jun-09 dec-09 jun-10 dec-10 jun-11 dec-11 Source: DFCG financial industry newsletter of 2/16/12 19

20 According to data published by Altares, payments in Europe were 13.5 days late on average in The trend in Europe is driven by Germany and the Netherlands, where delays are the shortest (8 days), and by Great Britain, where payment practices have been improving (from 19 days at the end of 2009 to 15.7 days at the end of 2011). The average in Spain and Portugal is 20 days. In France, payment deferrals have been relatively stable over the past six years. However, at the end of 2011, Belgium overtook France in third place, with both countries reporting average payment delays of about 12 days. Thus, regardless of payment terms, on average, only 40% of all firms pay their bills on time. Comparison of average payment terms in Europe Third quarter of 2011 Germany Belgium , ,4 Contractual DPO (days) Delay in payment (days) Spain ,8 France Ireland Italy ,1 18,3 15,5 A noter Contractual DPO s are the number of days theoretically in place. Practically, average DPO s without delay are generally over 70 days in Southern Europe and 30 to 50 days in the other countries. Netherlands ,5 Portugal ,3 United Kingdom ,4 Source: Altares First quarter 2011 analysis: Payment patterns of European firms The business view is that payment delays are primarily due to buyers having financial problems. It is acknowledged, however, that lateness may be deliberate and reflect a unilateral optimizing attempt, at the expense of the industrial or commercial supplier affected by the delay. 2. Increased restrictions on bank credit leave corporations without the means to finance their working capital needs As the above overview indicates, businesses in Europe continue to be in a difficult financial position: payment delays remain significant. 20

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