Despite legislation only 2% of SMEs charge interest on late payments.
77% of SMEs favour a mandatory 30 day payments regime with no opt-out.
Voluntary code of conduct slow to gain traction.
At the launch of the ISME Credit Watch Survey for the second quarter of 2015, today (13th July), the Association welcomed the reduction in the payment days as a sign that the economy was heading in the correct direction. The fact still remains that the credit being taken from SMEs is twice the optimal and must be reduced further.
Speaking at the survey launch, ISME Chief Executive Mark Fielding stated, “While it is encouraging that the late payments is reducing, this has more got to do with better trading conditions than any great change in culture, especially among state agencies and big business. The fact that SMEs are unable to charge interest on late payments clearly shows the weakness of legislation and the dominant strength of big business when it comes to supplier payments”.
In an ideal world all business would adhere to agreed credit terms. This ideal world, of course, is very far removed from the reality of business. Smaller businesses, in particular, face significant financial constraints and arranging a new facility can take between one and six months – making late payment much more than simply a ‘cost of doing business’. The reach of alternative finance, including invoice finance is growing fast, but has still a limited footprint in Ireland.
The main findings from 1,016 respondents in the first week of July are:
Average payment period for SMEs in the second quarter of 2015 has improved to 58 days.
21% of SMEs are experiencing delays of 3 months or more, down from 23% in Q1.
4% waiting 120 days and over.
Late interest is charged by 2% of SMEs, while only 4% of medium sized businesses charge it.
Munster businesses continue to wait longest, at 62 days, while Connaught is best at 50.
Construction businesses wait on average 70 while Wholesale is shortest at 46 days.
77% of SMEs favour a statutory 30 day payments regime, with no opt out, a drop from 83% in Q1.
ISME continues to propose the introduction of a statutory 30 day payments regime for all business trading within Ireland with other Irish based enterprises, without exception. This could be introduced on a phased basis over 3 years, as follows:
Year 1 60 days.
Year 2 45 days.
Year 3 30 days.
“The ‘soft’ option of a voluntary ‘Fair Pay Code’, was launched by government at Easter. Policymakers must focus their efforts on improving the trade credit behaviour of its own agencies and big business by demanding that they cascade good credit terms down the supply chain. The danger is that it could be ignored and stymied by them, delaying legitimate payments and placing SMEs in jeopardy. The onus now is on government to ensure that the Code is being adhered to”.
The Association called on the Minister for Jobs, Enterprise and Innovation to;
Amend the useless legislation and begin the process of reducing the statutory payment days to 30.
Insist that state agencies, especially the HSE, adhere to the 15 day rule.
Publicise, promote and champion the Fair Payment Code for all businesses.
Insist on adherence to Fair Payment Code as criterion for granting state contracts.
Insist on publication of payment data by state agencies as instructed.
Government should ‘name and shame’ those who pay SME businesses late.
Improve the efficiency of the courts in relation to trade credit.
Provide alternative dispute resolution and mediation options to SMEs.
Promote the adoption of e-invoicing.
“Late payments in Ireland is a product of industry hierarchies and market power, condoned by government for decades, leading to SMEs suffering. For big business it is the cheapest form of credit at zero cost, gained by the threat of withdrawal of future business. This abuse of a dominant position can only be rectified by government intervention, through the ISME proposals above”, concluded Fielding.