- 17 September 2012
To the recent controversy over bank lending to business masks another issue that is extremely disadvantageous to SMEs. That is the undue length of time often taken to pay business bills. There needs to be a decisive culture shift among businesses in Ireland with regard to late payments. If business were paid within the 30 days credit limit normally sought, liquidity restraints would be eased considerably.
In a business transaction when contractual and legal obligations have been fulfilled and the invoice issued, payment should be made as a general rule within no more than 60 days. The average payment period for an SME is 71 days according to a recent ISME report. There may obviously be circumstances in which companies require more extensive payment periods, for example when companies wish to grant trade credit to their customers, provided that such an extension is not grossly unfair to the creditor.
It should become widely accepted that interest on late payments automatically apply and that this should always be considered normal practice, Similarly it should also be accepted that creditors have the right to compensation for recovery costs and are in a position to exercise a retention of title clause on a non-discriminatory basis.
By 16 March 2013 Ireland has to bring into force the laws, regulations and administrative provisions necessary to comply with an EU Directive to combat late payments in commercial transactions. There is a public consultation underway on the Department of Jobs, Enterprise & Innovation website. Since 2002 legislation has existed in Ireland which will facilitate the introduction of further mechanisms into Irish law to combat late payments.
The Irish Government has also committed to extend the 15-day payment rule in the public sector beyond Government Departments to include the HSE, local authorities, state agencies and public sector bodies, except Commercial Semi-State Bodies. While legislation is essential in this area it would be far better and less costly if prompt payment became the accepted commercial practice.