Late payments are damaging small businesses

Late payments are strangling small firms, with the average payment in Ireland now taking 75 days, the Small Firms Association (SFA) has said. According to the SFA’s Winter Credit Survey, it now takes on average 75 days from the time a firm issues an invoice to the date it is settled, which is up from 66 days in its Autumn Survey. “Late payment causes major problems for firms, imposing unnecessary administrative burdens, and in this current climate when cash is the lifeblood of small firms late payments can result in insolvency,” says SFA director Patricia Callan.

RISE IN COST OF DOING BUSINESS

The survey also showed that 64% of Irish small firms indicate that late payment impacts on their cash flow, with 48% of firms in the past three months having experienced an extension of credit terms taken by clients. “The result is that the cost of doing business will increase, as many companies will have to resort to debt finance, such as overdrafts, to facilitate their cash-flow requirements,” Callan explains. “That is they can actually get it,” she adds, as 22% of respondents reported a decrease in working-capital availability from the banks over the past three months, and 14% reported an increase in the cost.

EU RULES ON LATE PAYMENT

According to the SFA, despite the introduction in 2002 of the EU Directive on Late Payment in Commercial Transactions Regulations – which allows companies to automatically charge interest penalties on accounts outstanding beyond 30 days following the date of receipt of invoice, or of goods or services – the average payment period in Ireland is still extremely high and is one of the slowest payment durations in Europe. “While the Late Payment Regulations allows for an interest penalty to be automatically applied to overdue payments, only 16% of respondents to our survey have late payment charges in their terms and conditions. This indicates that most firms avoid applying an interest penalty for fear that it could jeopardize long-standing business relationships or result in clients moving their business,” Callan says.

HSE ABUSING DOMINANT POSITION

“Furthermore, as the regulations allow companies to contractually agree their own terms, and therefore effectively exempt themselves from the 30-day payment period, what we are finding is that government semi-states and large companies are effectively abusing their dominant purchasing position and deciding what payment period they themselves want,” Callan says. “It is appalling that the HSE, in its terms and conditions, has set out a payment period of 45 days, in direct contravention to commitments given by An Taoiseach and An Tánaiste that all central government departments will pay their bills within 15 days and all other state bodies and local authorities will pay within 30 days,” she adds. The SFA is calling on the Government to not just instruct the HSE to pay its bills to small businesses within 30 days, but to move to have the entire extended government sector to pay all bills within 15 days. It is also calling for a Small Claims Court for business-to-business transactions to allow small companies to pursue outstanding debts without going through lengthy and costly civil court proceedings.

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Association of Electrical Contractors, McKinley House, 16 Main Street, Blackrock, Co Dublin. Telephone: 01 288 6499 Fax: 01 288 5870

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Source: AECI Newsletter - Jan/Feb 2010