When invoices go unpaid: how to reduce credit risk

The most immediate impact of longer payment periods is on cash flow. Costs such as payroll, procurement and taxes are incurred on an daily basis, while revenue is only received once the customer pays. As a result, the business must fund operations upfront, even when the underlying transaction
is profitable.

This distinction is critical: profitability reflects performance over time, whereas cash flow determines when funds are actually available. A company may report strong earnings yet still struggle to meet day-to-day obligations.

In effect, every invoice issued represents an interest-free loan to the customer. The longer the payment period, the larger that loan becomes.

Late payments are more common than many realise, and their consequences are greater than they may appear. According to the European Commission, late payments are a contributing factor in around one in four bankruptcies in the EU.

The trend in Sweden follows the same pattern. Bankruptcy numbers are at historically high levels, with 11,467 bankruptcies in 2025 – the highest level in more than 20 years. When payments are delayed across several tiers, pressure increases throughout the supply chain, leaving more companies exposed.

At the same time, large amounts of capital are tied up while companies wait to be paid. In Europe, the cost of late payments is estimated at around €275 billion a year. This is capital that cannot be used in the business and that holds back growth.

When a payment does not arrive, the impact reaches far beyond a line in the income statement:

• Liquidity weakens, affecting day-to-day operations
• Internal resources are tied up in follow-up and administration
• Financial KPIs deteriorate, which can affect creditworthiness
• Uncertainty increases, making investments harder to carry out

For companies with high customer concentration, the consequences can be particularly noticeable. A single non-paying customer may be enough to create a strained situation, even in an otherwise
stable business.

Factoring is often used to improve cash flow by allowing companies to sell their invoices and receive payment immediately. What differs between the two arrangements is who carries the risk if payment does not arrive.

• Recourse factoring means you are paid in advance, but you still carry the risk. If the customer does not pay, you must reimburse the finance provider. Cash flow improves, but the credit risk remains
  with you.
• Non-recourse factoring means the credit risk is transferred to the finance provider. You are paid and are not financially affected if the customer is unable to pay, for example due to bankruptcy or insolvency. This is the model used in ONESOURCE Pagero Factoring.

Credit risk needs to be managed proactively, with a clear understanding of where the risks lie – and how they can be reduced. Key measures include:

• Analyse your customer portfolio – Identify which customers account for the largest share of your revenue. The greater your dependence on individual customers, the greater the impact if payments fail to arrive.
• Credit insurance – Provides protection if a customer is unable to pay, for example in the event of bankruptcy. For companies selling internationally, there are also solutions that cover risks linked to specific markets.
• ONESOURCE Pagero Factoring – By selling your invoices, you receive payment immediately while the credit risk is transferred to the finance partner. This means missed payments do not affect
  your liquidity.

Credit risk is not about eliminating all uncertainty. It is about understanding it and acting in time. When payments are taking longer and bankruptcies are rising, it becomes increasingly important to focus not only on when the money will come in, but also on how likely it is to arrive at all.

ONESOURCE Pagero Factoring integrates cash flow and credit risk management into your existing invoicing flow.

That means you can sell your invoices and get paid immediately, while the credit risk is transferred to the finance partner. If the customer fails to pay due to insolvency or bankruptcy, your liquidity is not affected.

Want to find out how to reduce both cash flow risk and credit risk in your business?
Learn more about ONESOURCE Pagero Factoring.