In Malta, like in other Mediterranean countries, there is a greater tolerance towards late payment of debt, when compared to Northern Europe, bringing the average debt turn (the number of days taken to pay from date of invoice) to around double that in the UK, according to John Topolinski, head of invoice finance at HSBC Malta.
"This varies from one business to another and it depends on the type of product or service they sell," he said.
"It also depends on how efficient and effective the business is at credit management."
Mr Topolinski said that, generally speaking, businesses in Malta require more working capital to finance the gap between paying creditors, buying stock and getting debts paid.
"This puts pressure on cash flow. Good, well-run and organised businesses which pay their bills on time are, therefore, being held back by late-paying and inefficient businesses who cannot or will not pay on time."
Credit terms between businesses in the UK are usually 30 days, with payments made within 60 days. The credit gap, therefore, is around 30 days. In Malta, credit terms are longer and the credit gap can be in excess of 60 days, requiring a lot more working capital to fund it, he said.
"When compared to other countries in Europe, the legal framework and business culture to enforce payment of overdue invoices in Malta are also not as strong as they should be," he said.
"I believe, however, there are steps that businesses can take in terms of good credit management before resorting to the legal route."
With this in mind, HSBC is offering an invoice finance service which can help in three ways. It can provide immediate payment, usually up to 85 per cent of invoice value. It can also provide professional and disciplined credit management to improve debt turn and it can protect the client from bad or seriously overdue debts.
The businesses most likely to benefit from invoice finance are those which sell straightforward products and services with uncomplicated terms and conditions of sale, where the credit period is short, that is not more than 150 days. The credit turnover of the business should also be at least €150,000, otherwise the cost may outweigh the benefit.
Considering the benefits to be gained, the service is good value for money, Mr Topolinski said.
"There are two elements to the cost: The cost of funds is no more expensive than you would expect to pay for a business overdraft; and the service fee is calculated according to the workload involved in managing the sales ledger. This varies from client to client. It generally falls within a range of 0.5 to 3 per cent of invoice value. There are also cost savings."
This is how the service works: The client supplies the goods or service and invoices the customer. From a copy of the invoice, HSBC makes funding available - up to 85 per cent of the invoice value - the following working day. The bank processes and allocates remittances, and when an invoice becomes due, it actively chases for payment.
When the payment is received in full, the remaining 15 per cent is released to the client's account.
Export sales is another important area for HSBC.
"Where sales are made overseas, on open account, we can provide invoice finance with credit protection. We are members of Factors Chain International who are represented in most of the developed countries of the world. We can use the local representation to chase and collect payment," Mr Topolinski said.
Clients may also worry about how invoice finance might affect the relationship with their customers.
"Of course, we fully understand the importance of these client-customer relationships," Mr Topolinski said.
"Our aim is to work in harmony with our clients and their customers. By taking responsibility for the credit management, it will allow more time for our client to concentrate on looking after customers from a sales and service perspective. We confine our activity to bringing about the most effective method of paying invoices on time and making sure transactions are accounted for correctly. We are now receiving payments from around 3,000 different businesses in Malta and we expect that number to increase significantly this year.
"Invoice finance tends to work best when operated in conjunction with the business overdraft facility to provide an overall, one-stop working capital solution. The systems we use are on the same platform as HSBC's invoice finance business in the UK, which has been hugely successful, growing to over 6,000 primary clients and collecting from over 300,000 corporate debtors. Our staff is highly trained and have a thoroughly professional approach to delivering this service."
Invoice finance at a glance
• Improves cash flow;
• Frees up valuable time and resources that could be more profitably employed elsewhere;
• Earlier access to the business's money which you can re-invest to grow your business;
• It avoids hidden costs associated with providing extended credit for customers;
• A quicker responsiveness to market opportunities with more flexible source of working capital.
"This varies from one business to another and it depends on the type of product or service they sell," he said.
"It also depends on how efficient and effective the business is at credit management."
Mr Topolinski said that, generally speaking, businesses in Malta require more working capital to finance the gap between paying creditors, buying stock and getting debts paid.
"This puts pressure on cash flow. Good, well-run and organised businesses which pay their bills on time are, therefore, being held back by late-paying and inefficient businesses who cannot or will not pay on time."
Credit terms between businesses in the UK are usually 30 days, with payments made within 60 days. The credit gap, therefore, is around 30 days. In Malta, credit terms are longer and the credit gap can be in excess of 60 days, requiring a lot more working capital to fund it, he said.
"When compared to other countries in Europe, the legal framework and business culture to enforce payment of overdue invoices in Malta are also not as strong as they should be," he said.
"I believe, however, there are steps that businesses can take in terms of good credit management before resorting to the legal route."
With this in mind, HSBC is offering an invoice finance service which can help in three ways. It can provide immediate payment, usually up to 85 per cent of invoice value. It can also provide professional and disciplined credit management to improve debt turn and it can protect the client from bad or seriously overdue debts.
The businesses most likely to benefit from invoice finance are those which sell straightforward products and services with uncomplicated terms and conditions of sale, where the credit period is short, that is not more than 150 days. The credit turnover of the business should also be at least €150,000, otherwise the cost may outweigh the benefit.
Considering the benefits to be gained, the service is good value for money, Mr Topolinski said.
"There are two elements to the cost: The cost of funds is no more expensive than you would expect to pay for a business overdraft; and the service fee is calculated according to the workload involved in managing the sales ledger. This varies from client to client. It generally falls within a range of 0.5 to 3 per cent of invoice value. There are also cost savings."
This is how the service works: The client supplies the goods or service and invoices the customer. From a copy of the invoice, HSBC makes funding available - up to 85 per cent of the invoice value - the following working day. The bank processes and allocates remittances, and when an invoice becomes due, it actively chases for payment.
When the payment is received in full, the remaining 15 per cent is released to the client's account.
Export sales is another important area for HSBC.
"Where sales are made overseas, on open account, we can provide invoice finance with credit protection. We are members of Factors Chain International who are represented in most of the developed countries of the world. We can use the local representation to chase and collect payment," Mr Topolinski said.
Clients may also worry about how invoice finance might affect the relationship with their customers.
"Of course, we fully understand the importance of these client-customer relationships," Mr Topolinski said.
"Our aim is to work in harmony with our clients and their customers. By taking responsibility for the credit management, it will allow more time for our client to concentrate on looking after customers from a sales and service perspective. We confine our activity to bringing about the most effective method of paying invoices on time and making sure transactions are accounted for correctly. We are now receiving payments from around 3,000 different businesses in Malta and we expect that number to increase significantly this year.
"Invoice finance tends to work best when operated in conjunction with the business overdraft facility to provide an overall, one-stop working capital solution. The systems we use are on the same platform as HSBC's invoice finance business in the UK, which has been hugely successful, growing to over 6,000 primary clients and collecting from over 300,000 corporate debtors. Our staff is highly trained and have a thoroughly professional approach to delivering this service."
Invoice finance at a glance
• Improves cash flow;
• Frees up valuable time and resources that could be more profitably employed elsewhere;
• Earlier access to the business's money which you can re-invest to grow your business;
• It avoids hidden costs associated with providing extended credit for customers;
• A quicker responsiveness to market opportunities with more flexible source of working capital.