Paying on time
Irish businesses take more than two months to settle their bills, and are among the slowest in the European Union in paying for goods and services. Last year creditors lost some €4.5 billion through late payments. For many small companies the failure to be paid on time compounded their financial difficulties, creating cash flow problems that threatened their survival. A new EU directive hopes to change that culture and practice. From next March, public authorities must pay outstanding bills within 30 days, but not later than 60 days. And businesses must do so within 60 days, unless both parties agree to extend the payment date.
However, this long-awaited directive – agreed by the European Parliament two and a half years ago – has received a critical reception from small business; the sector the legislation is intended to help. Mark Fielding, chief executive of Isme, the small business lobby group, claims the new rules will make a bad situation worse, and force more small companies to close. He fears Government agencies and big business will continue to exploit the terms of the new directive, as they have done in the past, to their own financial advantage. His worries may yet prove misplaced. Nevertheless, they offer grounds for concern.
The aim of the directive is to ensure small and medium enterprises are no longer forced to serve as banks to public enterprises and big companies. Some of the latter cynically use the late payment of bills to suppliers as extended credit. The EU directive now offers creditors a right to claim interest on late payments, and to be compensated for debt recovery costs. But it fails to recognise adequately the unequal bargaining power of both sides.
As Mr Fielding has pointed out, small companies fearful of losing business, are not best placed to insist on their legal rights if the price of doing so may well be bankruptcy. In the midst of a prolonged recession, the EU has delayed too long in introducing a directive that delivers too little.