If you run a business, cash flow is vital. Delays with payments have a pernicious effect: if you don’t get paid, you can’t pay your bills or your suppliers, and the chain-reaction can have a crippling effect on business, not to mention the wider economy.
In the words of the European Commission’s Enterprise and Industry Directorate:
Companies go bankrupt waiting to be paid. Jobs are lost. Dreams die. Across the European Union, paying suppliers late is common. It costs little and is considered acceptable. But it does great harm. Every year, hundreds of thousands of European businesses have closed waiting for late payments. Small and medium-sized enterprises are particularly exposed to late payment, and business selling across borders are especially vulnerable. The late payment culture has to change, and the European Union is equipping business with the tools to make this change happen.
So the European Union is trying to help business (it does sometimes help rather than hinder business, contrary to what certain politicians tell us). In this case the help comes in the form of the late payment directives, the latest of which is Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions.
The following is taken from the recitals (the “whereas” bits at the start of the Directive):
Many payments in commercial transactions between economic operators or between economic operators and public authorities are made later than agreed in the contract or laid down in the general commercial conditions. Although the goods are delivered or the services performed, many corresponding invoices are paid well after the deadline. Such late payment negatively affects liquidity and complicates the financial management of undertakings. It also affects their competitiveness and profitability when the creditor needs to obtain external financing because of late payment. The risk of such negative effects strongly increases in periods of economic downturn when access to financing is more difficult.
In its Communication of 25 June 2008 entitled ‘“Think Small First” — A “Small Business Act” for Europe’, the Commission emphasised that small and medium-sized enterprises’ (SMEs) access to finance should be facilitated and that a legal and business environment supportive of timely payments in commercial transactions should be developed. It should be noted that public authorities have a special responsibility in this regard. [my bold]
Under the Directive, businesses can charge interest for late payments, as well as compensation for recovery costs, where appropriate.
The deadline for transposition in EU member states was 16 March 2013.
In Italy, the Directive’s been transposed as Decreto Legislativo 9 novembre 2012, n. 192 […] relativa alla lotta contro i ritardi di pagamento nelle transazioni commerciali. In the UK (England, Wales and Northern Ireland – it’s a devolved issue for Scotland), the Directive’s been implemented through The Late Payment of Commercial Debts Regulations 2013.
However, the UK Government issues a word of warning to suppliers thinking of applying interest or costs:
Think about your relationship to the customer before adding interest or costs, and give them another chance to pay.
And there’s the rub. If you apply interest, will your client simply find another, more amenable, supplier? Some of my clients get annoyed when I’m so bold as to merely ask them for an up-date on my poor invoices, languishing as they await yet another signature. I’m viewed as a trouble-maker.
In the case of translation — but this applies to other sectors too — some public sector organisations deliberately choose large agencies because, or so the reasoning goes, they’ll be better able to withstand the problems caused by late payment. But large agencies, by definition, have higher staff and running costs than small ones. They suffer too if clients don’t pay promptly.
It is in any case a cynical line of reasoning: a government department opts for a large, and not necessarily good, supplier to ease its conscience as it has no intention of speeding up its payment procedures.
What’s your experience of late payments? Have you ever applied interest or sought compensation for costs incurred chasing up payments? Let us know in the comments — it’s a vitally important issue and we’d love to hear about your experience.
By Marian Dougan