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
The bulk of my clients are of third sector organisations and charities. As well meaning as they are in their missions, some of the smaller ones take an astonishingly parochial approach to finance. I have had an invoice paid late because every staff member lives in a different city and the person with the chequebook lives in Perth; I have had an invoice paid late because the person with the chequebook was away for a month on holiday; I have had an invoice paid late because the two cheque signatories only see each other once a month; and I have had an invoice paid late because the finance person only works three hours a week.
It’s frustrating that the process of chasing up payment can sometimes feel like having to teach organisations how business works. And it’s actually quite offensive to be told you’ll get paid when the treasurer returns from their caravan. It’s hard to not feel personally offended when you can’t afford to take a holiday because someone else helped themselves to theirs.
Great comment Heather. I’ve had similar experiences. It’s incredibly wearing to have to keep checking your bank account, send out reminders and put off business purchases just because organisations can’t get their collective act together. Some of them seem not to understand the concept of “cover”: ie, if you’re going off on holiday, someone else stands in for you while you’re away. Including by signing off on payments. It’s not rocket science…
I think we’d agree a big part of the problem is still business’s use of paper cheques. I recently had an invoice paid five weeks late, by cheque, in the post. When the envelope arrived it was wide open (!), but the cheque was somehow still in there. I then had to wait a week for the cheque to clear the bank. While standing in the bank queue to deposit it I couldn’t help but mull over the absurdity of my ability to keep the heat on being contingent on a piece of paper sent five weeks late in an open envelope.
Fortunately I don’t have that problem – my clients pay by bank transfer. BUt I agree – cheques are a pain in the neck.
Marian, do you happen to know if this has been implemented yet in Italy?
If the directive hasn’t yet been transposed into the customer’s country’s law, then presumably they’re not bound by it?
Hello Oliver – It was transposed as DECRETO LEGISLATIVO 9 novembre 2012, n. 192: Modifiche al decreto legislativo 9 ottobre 2002, n. 231, per l’integrale recepimento della direttiva 2011/7/UE relativa alla lotta contro i ritardi di pagamento nelle transazioni commerciali, a norma dell’articolo 10, comma 1, della legge 11 novembre 2011, n. 180. (12G0215) (GU n.267 del 15-11-2012).
I include a reference to the legislation in all my invoices. To be honest, most of my Italian public sector clients are reasonably quick – once the lettera d’incarico has been properly registered, which can take ages. Jan to April are always famine times in my business, given the new financial year and the delays that causes.
This is a good post. I’ve been wondering a lot about the issue lately, since I have a wonderful client in mainland Europe who insists on paying me very late every month – and the invoices are not small, either.
I kicked up about it more last month because I was starting to get fed up, but was basically told that they have a tacit understanding with their translators that the invoices will eventually be paid, but not necessarily bang on time. I was also told, however, that invoices are processed twice a month (every two weeks), and when I pointed out that this means they have two occasions each month to pay on time, I got no reply.
I don’t want to threaten the client with interest since they are a big client of mine, I love the PMs and I enjoy the work they send me, but it makes me quite sad each month to see that, yet again, my invoice will be paid late… They’re actually making me feel the need to go looking for a few more clients just in case the situation doesn’t improve; I invoice them for large amounts and their late payments really affect my cash flow.
Thanks for your comment, Marie. I’ve got one agency client who pays me at 90 days, and always has done. I know that she in turn works a lot with the public sector so I’ve resigned myself to the 90 days.
It’s a difficult balance – trying to maintain good relations with clients, while protecting your business at the same time. Having a range of clients certainly helps. I’ve done 4 or 5 translations this year for individuals – people needing qualifications translated, and so on. And they’ve all paid me in about 3-4 days – tiny amounts, admittedly, but paid promptly.
I personally wouldn’t accept that. A “tacit understanding” is not the same as terms and conditions. I’d perhaps offer to extend credit, but they’d have to pay a higher rate if so. After all – a bank charges for providing credit, and that’s what they’re trying to cut corners on.
More worryingly is your statement about how much you care about this client. You call them lovely simply because they give you work. “Lovely”, to me, means something different. Generally it means someone who gives me a moderate or even small amount of work, but pays good rates and settles invoices promptly. NEVER be too dependent on one client as it is a road to disaster. Such clients will use and abuse you (as you are experiencing) and will often not think much of dumping you if someone (even) more willing to be abused (be it rate or payment times) comes along.
Get out there and get new and better clients, Marie. Leave those shitty conditions to the shitty, cheap translators who have no other options.
I never said I accepted it; I said I’d like to find a tactful way of dealing with it whilst picking up a few extra clients. I don’t want to lose them, but that’s not just because they give me work; I like the entire package with them. I also have plenty of other “big” clients, so I’m not overly reliant on them, I just like this particular partnership. I happen to especially enjoy the work I get from this client, and I enjoy the working relationship I have with the staff, so I’m happy to tread firmly but lightly. I think you read too much into my statements 🙂 Thanks for your comments though!
Ahhh… fair enough. Glad I *did* get the wrong end of the stick! I’d be far more concerned if I’d been absolutely correct! I like to ask these agencies how they would feel if they weren’t paid such a sum of money. In fact, I did this to a known late-payer face to face recently. He said the clients hadn’t paid. He also said he had a translator who made a comment saying “It’s okay, I can stay at my mother’s this weekend and I can eat there for free.” and that started getting him thinking. Claiming poverty won’t always work, but in this case it got the guy thinking. His response when I said it should be him going hungry or a little less wealthy was still, “It should be x (the client) that are going hungry!”, though…
I mean it when I say I don’t stand for it. Anyone slightly dodgy often ends up getting worse.
This is a good, informative blog post on the new EU regs and how to go about enforcing them yourself:
Thanks Richard – that’s a great post, with good practical tips.
In France since January 1st 2013 on any B-to-B invoice you now have to to stipulate a special clause concerning the interest rate for late payments and the fact that (theoretically) there’s a €40 charge for any late payment. This also has to be mentioned in your Terms and Conditions. (Article L. 441-6 of the French Commercial Code). I imagine this is to be in line with the EU Directive 2011/7 you mention in your post.
By the way when I lived in South Korea I loved the payment system there – cheques barely exist, and everything can be done by (free) bank transfer, from an ATM or your computer. The recipient gets the money instantly – and you can set up your bank account so that you receive a text message when your account has been credited. Brilliant system! I never translated for any Korean clients though, so I don’t know whether invoice payment is timely.
Thanks, Catharine. I include a payment terms note in each invoice. Haven’t up-dated my Terms and Conditions yet – will need to do so. The South Korean system sounds great – payments made from ATM? Wow!
As far as I know this has been implemented in the Netherlands already, some time ago in fact. I think in Germany, too, but I’ve not checked. I find it interesting and will ask around a bit more. I agree with your comments – it is important to raise the profile of this issue.
Personally I don’t have any problems with late-payers, but I am very picky about the countries and clients I work with. I know it’s less of an option for those in other language combinations, but I find sticking mainly to Germany, BeNeLux and Scandinavia avoids most problems (although I do have a couple of nice clients in Ireland and Spain).