Cash flow remains a major issue for Maltese businesses, with the deeply interlinked economic set-up meaning that one industry’s problem can quickly spread to other sectors.

The solution, says the Malta Association of Credit Management (MACM), is for businesses to take a proactive approach and conduct the necessary due diligence before extending credit and determining what terms such extension should be bound by.

Josef Busuttil, a co-founder of the MACM who has served as the organisation’s director general for almost 22 years, tells that bad credit is a major problem facing Maltese businesses today.

“If you look at court records, for example, they clearly show there is a big problem of cash flow,” he says. “Ultimately, Malta is a tiny country, but there are an average of 50 new judicial letters and executive warrants (mandati) every day … this is a huge number when considering our size.”

A survey conducted by the MACM in 2021 showed that Maltese debtors take an average of 80 days to settle their bills, compared to a European average of 60 days.

Mr Busuttil explains that the MACM “always stresses” on businesses that sell on credit to do their due diligence and undertake a creditworthiness analysis before extending credit.

“You need to know who you are working with,” he says, adding that it is “imperative” that businesses do not simply do this once and take it as a given that the client’s creditworthiness has remained the same.

“Today, Company A might check out, but how would you know if six months, one year down the line, it has started messing about? You need to know what your clients are up to if you are to make timely decisions that can have a big impact on your business’s long-term sustainability.”

Mr Busuttil believes that effective credit management is “all about being proactive”.

“That’s why we’re here. We always tell the business community to enter our system before giving credit. We have all the information available, and they can see if their clients are credit-worthy or not – and to what limit credit should be extended.”

Limiting factors

A history of dishonoured checks, overdue accounts, and court actions, of course, all indicate that the company in question should be treated with caution. But so does, according to Mr Busuttil, the company’s active lifetime.

“There is a big difference between a business that has been operating for two years and one that has been operating for 20,” he says. “The fact that a business has been active for so long is an important indicator of its ability to honour its obligations.”

COVID credit

Mr Busuttil praised the measures introduced by Government to shore up cash flow in the economy during the COVID-19 pandemic, pointing to the wage, rent and energy subsidies as key policies that helped Maltese businesses “immeasurably”.

The same goes for the Malta Development Bank’s loan guarantee scheme, which allowed businesses to take out low-interest loans to pay for their operating costs – an expense which credit institutions do not typically finance.


“The bottom line,” concludes Mr Busuttil, “is that healthy cash flow is extremely important, and that goes double in the case of a small island economy characterised by deep interlinkages.”

In other words, having one industry suffering from weak cash flow is a problem that can quickly spread to other sectors along the chain.

“Cash flow is a chain, and if you cut one link, that chain is useless. If you don’t pay me, I can’t pay my suppliers.”

Those industries which were badly affected by the severe slowdown in travel over the last two years do not operate in a closed ecosystem, Mr Busuttil points out.

During the worst months of the pandemic, certain companies to which suppliers would previously “close their eyes and extend credit” were so hard hit that, to this day, are still dragging their feet on paying their dues.

The MACM, at the time, intervened by encouraging its members to enter arrangements with clients impacted by the pandemic and construct repayment programmes built on understanding.

However, that came at a price, underlining the importance of good cash flow: “You can support a struggling company by providing it with goods and services to keep its operations going without trouble,” says Mr Busuttil.

“But if previous credit terms of 30 days are now extended to six to 12 months, well… obviously, that creates a cash flow problem.”

About the MACM

The MACM is a non-profit organisation owned by its members, together representing a substantial share of the economy.

It was set up in 2001 by a group of major importers, distributors and retailers in the wake of what it describes as “a number of bankruptcies in the retail sector, a slowing down of payments by customers in all areas of the economy, and a large number of dishonoured cheques.”

Its main role is to help Maltese businesses in their credit management by facilitating the exchange of credit information and assisting in the collection of amounts due.

Next week, on Tuesday 21st February, it is organising its annual conference addressing the subject of the impact of international economic turmoil on trade and credit.


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