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“Late payments strangling small firms” – Small Firms Association

“Late payment causes major problems for firms, imposing unnecessary administrative burdens and in some instances can lead to insolvency. 60% of businesses indicate that late payment impacts on their cash flow, resulting in companies having to resort to other forms of finance to facilitate cash flow requirements.” Avine McNally, Assistant Director, SFA.

The Assistant Director of the Small Firms Association (SFA), Avine McNally has said that late payments are compounding an already difficult financial environment for many small firms. The SFA Autumn Credit Conditions Survey highlights the challenges that are being experienced by small businesses in relation to late payments. McNally said “in Ireland, from the time a firm issue an invoice to the date it is settled is on average 66 days. 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.”

60% 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 other forms of finance, such as overdrafts, to facilitate their cash flow requirements,” commented McNally.

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.

McNally stated, “While the Late Payment Regulations allows for an interest penalty to be 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. 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.”

KEY SURVEY RESULTS:
• 60% of small firms offer credit terms of 30 days or less
• 60% of companies experience late payments
• 13% of companies have shortened their credit terms in the current climate
• 48% of firms are coping with client companies taking extended payment time in the last 3 months
• 17% 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

McNally commented “Late payment appears to be 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.
Irish companies have problems gaining access to Court due to administrative backlogs, the lengthy delays in setting up Court dates and the relevant costs.”

“Unfortunately overdue accounts are a fact of life for every small business in Ireland, but the inadequate response by firms to late payment is itself a cause for concern, and one that needs to be addressed. If they are allowed, people will use a firm as their cheapest source of interest free credit, therefore, firms need to have a proactive credit management policy, which establishes credit worthiness, sets credit limits and tracks the type, amount and due date of invoices. It is essential that companies adhere to the policy and monitor and review it on a regular basis,” concluded McNally.

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