The Director of the Small Firms Association (SFA), Patricia Callan, has said that late payments in Ireland are worsening and are compounding an already difficult financial environment for many small firms.  The SFA Winter Credit Conditions Survey highlights the challenges that are being experienced by small businesses in relation to late payments.  Callan said: “in Ireland, from the time a firm issues an invoice to the date it is settled is now on average 75 days (up from 66 days in our 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.” 

64% of businesses indicate that late payment impacts on their cash flow, with 48% of companies in the last 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, and that is if they can actually get it” commented Callan, “with 22% of respondents reporting a decrease in working capital availability from the banks over the past 3 months, and 14% reporting an increase in the cost”.

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.

Callan stated: "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 jeopardise long standing business relationships or result in clients moving their business.  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.  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 give 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.   The SFA is calling on the Government to not alone rectify this situation, and 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.  “If the government are serious about helping small businesses with their cashflow problems, then this is essential”, commented Callan.

KEY SURVEY RESULTS:

• 56% of small firms offer credit terms of 30 days or less
• 64% of companies experience late payments on their credit terms
• 33% of those companies take up to 30 days extra than what is offered, with 21% taking between 30 and 60 days extra
• 12% of companies have shortened their credit terms in the last 3 months, with 11% having had to extend them
• 48% of firms are coping with client companies taking extended payment time in the last 3 months
• 11% of firms have extended credit terms they take from suppliers in the last 3 months
• 16% of firms use debt collection agencies to follow up on overdue accounts
• 16% of firms have late payment charges in their terms and conditions

Callan concluded: “Late payment is a self-perpetuating problem. When a firm receives late payment, the companies merely shift the problem on to their own suppliers.  One of the key difficulties is enforcement of rights under the Late Payment in Commercial Transactions Regulations, 2002.  If a company wishes to purse a claim, it is difficult to do so as there is no Small Claims Court for businesses and there are no simplified legal procedures.  Small companies have problems gaining access to Court due to administrative backlogs, the lengthy delays in setting up Court dates and the relevant costs.  What is required is the urgent establishment of a Small Claims Court for business to business transactions, to make it feasible for small companies themselves to pursue outstanding debts, without going through lengthy and costly civil court proceedings.”