According to the latest credit watch survey, there has been a marked improvement in the average payment period for small businesses. During the first quarter, it improved from 71 to 67 days. Perhaps it's not something that strikes as a bellwether to boom-time recovery, but it is the best figure recorded since the autumn 2008, according to Irish Small and Medium Enterprise Association (Isme).
Small and medium-sized businesses employ more than 650,000 people in the State and contribute €10 billion in taxes to the Exchequer every year. They have been badly hit by the recession.
Given that cashflow is the lifeblood of SMEs, any improvement is a welcome relief. Yet the survey shows that 35 per cent of companies are still experiencing delays of three months or more in getting commercial payments, including 8 per cent which were left waiting more than 120 days. In the distribution and hospitality sectors, the average is now 73 days.
This is all against a backdrop of an EU directive on late payments in commercial transactions that was transposed into Irish law earlier this month. The regulations provide for specific deadlines for the payment of invoices and also make provision for compensation for suppliers in the form of interest where payment terms are breached.
This directive lays down the specific deadlines for the payment of invoices and establishes a right to compensation in the event of late payment in all commercial transactions.
The main point of the new rules is that public authorities must pay within 30 days or, when specifically agreed, within 60 days. Other businesses have a deadline of 60 days unless there is an express agreement otherwise. Firms are automatically entitled to claim penalty interest if the deadlines are not met. Politicians and officials will undoubtedly trumpet the new legislation as a success if future surveys show that average deadlines fall within the 60-day limit.
However, it’s still a long way from what the likes of Isme want: a 30-day mandatory payment regime with no exceptions.
Government has a role as the champion of the underdog in such situations and it should at least set itself a more ambitious target and timetable for a mandatory payment system on behalf of small firms, which are not in a position to do battle with their big business clients.
