Late payment hurts small firms

LATE payment regulations are simply not working, Small Firms Association assistant director Patricia Callan declared yesterday.

"When small companies fail, they don't run out of ideas, products or customers. They simply run out of money. Late payment is crippling small business," she said.

Ms Callan said that regulations on late payment implemented last August have had minimal impact on solving cash flow difficulties faced by small businesses.

"Regulations without enforcement mechanisms are valueless," she added.

"What is now urgently required is the creation of a small claims court for business, similar to the existing court for personal claims. Legal procedures should also be simplified and a more cost efficient legal service provided," she said.

"The transposition of the EU directive required changes to the Irish Courts Bill, in order to provide the proper framework for enforcement of the legislation, but this has not occurred to date."

The European Communities (Late Payment in Commercial Transactions) Regulations 2002, make it compulsory for all companies to pay accounts within 30 days following the date of receipt of invoice, or of goods or services. This applies to all commercial transactions. The regulations provide that companies who fail to pay their accounts within 30 days will be required by law to pay interest penalties of 9.75% per annum currently (equating to a daily rate of 0.0267%).

"However because of changes in the economic environment, the regulations have failed utterly in resolving the problem of late payments," said Ms Callan.

Recent SFA analysis shows that late payment is a serious business problem for small firms.

The average payment period in Ireland is currently 52 days, whilst in the UK and Germany it is 49 and 38 days respectively.

Almost 70% of small firms offer credit terms of 30 days or less, yet only 8% are paid within that time.

58% of small firms customers regularly pay late, and almost one third of small companies must live with a situation in which 75% of their customers fail to pay on time.

Only one firm in five uses debt collection agencies to follow up on overdue accounts. Anecdotal evidence suggests that most firms avoid this route for fear that it could jeopardise long standing business relationships.

Late payment is a self-perpetuating problem. Small firms are less likely to pay late but where this does occur the reason most frequently given is late payment by customers companies merely shift the problem on to their own suppliers.