After the shareholders/company owners, suppliers and the banking institutions are the most important source of finance for European companies. Suppliers are the weakest link in the financing chain of ’company owners-banks-suppliers’ because of the economic/business practice system in place.
In contrast to company owners, but also the banking institutions, suppliers often do not have the necessary information available to assess conclusively the creditworthiness of customers. When customers experience financial difficulty, the suppliers affected usually recognise the symptoms too late, and after they have, as is all too often the case, been treated as a lender of last resort.
The banking industry employs highly qualified specialists for the assessment of credit risks, has sophisticated IT systems and key internal information from their credit customers. Although suppliers are at a disadvantage, they still only partly use credit risk opportunities available to them.
In contrast to company owners, but also the banking institutions, suppliers often do not have the necessary information available to assess conclusively the creditworthiness of customers. When customers experience financial difficulty, the suppliers affected usually recognise the symptoms too late, and after they have, as is all too often the case, been treated as a lender of last resort.
The banking industry employs highly qualified specialists for the assessment of credit risks, has sophisticated IT systems and key internal information from their credit customers. Although suppliers are at a disadvantage, they still only partly use credit risk opportunities available to them.
The urgency for action is illustrated by high payment losses which have to be compensated by increasing sales turnover exponentially. In addition 45% of accounts receivable of the companies registered in the European Union are overdue, funds that could be better used for other purposes.
Changed rules on the financing markets
The rules on the financing market have changed in the past few years and are in the middle of a further phase of structural change. At the beginning of 2007, the new Regulations on capital adequacy proposed by the Basel Committee on Banking Supervision (Basel II), came officially into force.
The effects – in particular on the small and medium sized enterprises – are
