Late payment legislation has failed to deliver for small business
ISME, the Independent Business Organisation, has expressed concern at the increase in late payments, which is 'crucifying' many small firms, denying them the cash flow required to properly manage and run their businesses. This situation has occurred despite legislation being in place for five years, supposedly to alleviate the situation.
Research conducted by the Association confirms:
· 32% of small companies are waiting longer for payment than the corresponding period last year.
· Only one in five (22%) companies is being paid within 30 days.
· 23% experiencing delays of 90 days, with 2% waiting over 120 days.
· Actual average payment period in Ireland for SMEs is 61 days.
· Connaught companies are collecting faster than the rest of the country at 54 days.
· Ulster's three counties are the slowest at 69 days.
· Businesses in Ulster and Leinster are finding it more difficult to collect money than last year.
· Unsurprisingly the Connaught debtors have shown the greatest improvement.
· SMEs are on average owed twice as much trade credit as they themselves owe to larger businesses.
Commenting on the survey results ISME, Chief Executive Mark Fielding stated, “The results confirm that legislation introduced to address the issue has patently failed to deliver for small business. This legislation, which applies to all commercial transactions, requires companies to pay their suppliers within 30 days, in the absence of a contract outlining otherwise. “
Failure to pay within the 30 day designated period should attract an interest rate penalty, currently at 10.5% per annum. However almost all small businesses avoid this route for fear that it will jeopardise long standing business relationships.
The evidence also suggests that small companies are still being forced by accountancy led big businesses to accept credit terms longer than those outlined in the legislation for purchases from SMEs. State bodies are also abusing their position in demanding the reissuing of invoices, months late, to cover their failure to pay on time and avoid reporting requirements on late payment.
These same large companies and state organisations insist on adhering to the 30 day rule for their own sales and services, which creates a double bind for small companies who are only in a position to make payment once they themselves have been paid. SMEs are on average owed twice as much as they themselves owe to larger businesses – this amounts to an ‘interest free loan' which SMEs grant or are forced to grant to larger businesses.
84% of member companies surveyed outlined that they would be in favour of the introduction of a universal mandatory 30 day payment terms as the only solution capable of addressing this significant threat to small businesses.
Cash flow is the lifeblood of any small business and it is imperative to have a realistic and adequate cash flow for the day-to-day running of the firm. If small business has to pay within 30 days but is forced to give 60 and in some cases 90 days credit to the financially more powerful big business and state organisations, then this acts not just as a constraint on growth but as a threat to the very existence of many small businesses and is the ‘Achilles heel' of the SME sector.
“The fact that so many companies are being forced to wait longer for payment shows that the five year old legislation is a sham. It has not been adequately policed as small businesses continue to be squeezed by their larger counterparts and consequently should be amended,” continued Fielding.
Fielding called on the Government to introduce:
· A mandatory payment period, whereby all companies, regardless of size, would be guaranteed payment within 30 days from the end of month of invoice or delivery, as was initially intended by the legislation, with no exceptions.
· A mechanism along the lines of the existing small claims court structure to settle disputes as they arise and to prevent further abuse of the small business sector.
This would stop the abuse of dominance by large business, allow all businesses to predict their cash flow and introduce a level playing field for all credit transactions.