SME’s: Lifeblood of the economy
To give you an idea of the economic importance, Belgian SMEs account for almost two million jobs, accounting for 64% of total employment. Therefore, it is no surprise that many deem the SME the lifeblood of an economy.
According to the Companies Code, small companies are:
Companies with legal personality that do not exceed more than one of the following criteria for the last and the penultimate closed financial year:
- the annual average number of employees is 50
- the annual turnover, excluding value added tax, is 9.000.000 euros
- the balance sheet total amounts to 4.500.000 euros
Challenges for SME’s
The study shows that the main challenges for SME’s include administrative and regulatory burdens, tax policy, and the availability of skilled staff and associated costs.
SMEs also have problems with finding finance, fierce competition, and a heavy costs structure (labour costs, regulation, taxes).
SME activity per region:
- Brussels: 12%
- Wallonia: 27%
- Flanders: 56%
Source: Global Business Monitor 2019, Bibby Financial Services - Euler Hermes.
What do the numbers show on Belgium?
Export-oriented and reduced tax
Overall, the business climate in Belgium is rather supportive of SME’s. Proximity to many major markets such as the UK, France and Germany, Belgium unsurprisingly created an export-oriented economy. This is further evidenced by the ease of conducting cross-border trade, compared to other countries. Export opportunities are ample, and the cost of exporting is neglectable. The fact that Belgium has an export agency in all its three main regions is probably a conducive factor.
The result is a high share of export focused SME’s in Belgium: 7.1% of total SMEs against 5.5% on average for peers. What the impact of brexit will be on export, the future will show.
Another positive element is that is that Belgian SMEs have enjoyed a reduced corporate tax rate of 20% since 2018 (vs. the normal rate of 29%). This gap boosts SME margins by around +2pp. Belgian SMEs already boast of higher margins compared to peers. In 2017, the EBITDA to turnover ratio stood at 13%, +2pp above the European average. This should alleviate the drag of rising costs like wages and import prices.
Competition, administration and rigidity
On the negative side, the corporate tax rate itself is high compared to peers (+5pp higher than France, for example). Furthermore, fierce competition, administrative or regulatory burdens and labour market inflexibility seem to put downward pressure on the SME business climate.
Unpaid invoices weigh heavily
Rising fixed costs and cash flow stability seem to be important challenges for the Belgian SME climate. Almost half (43 %) of SME’s reportedly had a negative impact on profit margins due to bad debt, meaning that compared to European counterparts, Belgian SME’s suffer the most from uncollectible outstanding invoices. In fact, the biggest worry of Belgian SME’s is the timely collection of invoices. Just over one third of SME’s list this as their main issue with cash-flow stability. Invoices that are paid too late or not at all are a direct attack on a company’s liquidity.
In Belgium 1 in 4 bankruptcies results from non-payment of clients.
Source: Euler Hermes Global Economic Outlook
Assets of credit insurance for SME’s
To avoid non-payment, it is important to know your customer so you can avoid these problems and focus on what really matters, your core business. Collaborating with an established excellent credit insurer is a sure-fire way to combat these issues and prevent them.
You don’t have experience with a credit insurer yet? Look at how we can help you by letting us perform a solvability check on three of you clients or prospects, without any obligation. That way you make sure that you know whom you are dealing with and you can easily check the financial health of your customers.