Poll: Majority of small firms afraid to penalise over late payments

The majority of small firms are unwilling to penalise people who are late paying them for fear of losing business in the current economic climate.

The Small Firms’ Association payments survey found that getting paid on time remains a significant problem for small businesses despite the introduction of legislation to allow small firms to charge interest penalties on accounts outstanding beyond 30 days.

The Director of the Small Firms Association (SFA), Patricia Callan said it is an ongoing problem hindering the whole sector.

“Getting paid on time is a never-ending problem for most small businesses. Late payment causes serious cash flow problems; requires firms to extend overdraft facilities or engage in additional borrowing and consumes a great deal of management time. This in turn affects the ability of the business to compete, be profitable and expand.”

In 2002 an EU Directive on late payments was introduced, allowing penalties to be introduced after 30 days, but in Ireland the average payment period remains stubbornly high at 62 days.

“Many firms choose not to apply the interest penalty allowed under the existing legislation. Our recent survey shows that 73% of firms do not apply the interest penalty,” said Ms Callan.

The reasons that firms don’t penalise other businesses range from fear of losing business, to the customer being too big to challenge or fear of gaining a reputation as being a difficult supplier.