Late payment culture still harming SME growth

The ISME Credit Watch Survey for Q4 2015 indicates that average payment waiting days have increased by one day in the last three months to 56 days.

The Association believes that these payment delays continue to create significant cash flow issues for ambitious small firms and has called on the Government to prioritise changes to the Irish payment culture to underpin SME growth.

Mark Fielding, chief executive, ISME, said: “SMEs have every right to expect to be paid promptly for the products and services that they deliver but, all too often, this simply isn’t the case.

“They are forced to wait an average of almost two months for invoices to be paid and they must somehow maintain a steady cash flow despite these payment backlogs.

“Big businesses think nothing of demanding long payment terms, despite the clear burden that this places on the smaller business.

“This is blatant abuse of a dominant position and is condoned by the current administration.

“These large businesses could afford to pay on time but they take advantage of their dominance to reap the benefits of delayed supplier payments. The next time consumers hear big businesses brag about their CSR efforts they should ask them how long they take to pay SMEs.”

One positive to come out of the survey of 956 ISME respondents was that 15 per cent of SMEs experience payment delays of three months or more, down from 16 per cent in Q2 2015.

Interestingly, late payment interest is only charged by one per cent of SMEs, while only four per cent of medium-sized businesses also charge it, such is the importance of customer retention.

Dublin-based businesses appear to wait longest for payment, averaging 61-day payment windows, while the rest of Leinster waits 52 days on average.

ISME continues to propose the introduction of a statutory 30-day payments regime for all businesses trading within Ireland with other Irish-based enterprises, without exception.

It’s thought this could be phased in over a three-year period as follows:

• Year 1: 60-day payment period

• Year 2: 45-day payment period

• Year 3: 30-day payment period

“While the prompt payment code and portal are worthwhile initiatives, they are still not a definitive solution to the problem,” added Fielding.

“Such a solution could be delivered, in the form of legislation to mandate 30-day payment terms, if the Government only had the courage to demand fair play of the large MNCs.”

Date published 29 Dec 2015 | Last updated 29 Dec 2015