Why Prompt Payment Matters for SMEs
Jul 19, 2016
It is estimated that almost €4billion could be owed to Irish businesses due to late payments, an average of almost €23,000 per business. This massive sum of uncollected revenue has become a drain on Irish business and the Irish economy as a whole. There are many consequences of late payments for businesses of all sizes but for SMEs particularly it can lead to constrained cash flow, create unnecessary business uncertainty and increases the need for burdensome and costly collections processes. Although this trend adversely affects all of Irish business, SMEs are particularly vulnerable to the complications of untimely or entirely delinquent payment. According to a recent survey of 2,500 SMEs, more than one third have been forced to lay off staff and almost half have been late to pay themselves as a direct result of delinquent payments.
This strain on business is entirely avoidable, but requires action be taken on the part of all business to ensure payment is made on time and to ensure the integrity of their contracts. More must be done by larger companies to ensure that SMEs are not put under severe pressure due to late payment.
Born out of an understanding that all companies will benefit from a prompter and more carefully outlined payment process, the Prompt Payment Code sets standards for the best practices in payment processes. The very basic goal of Prompt Payment is to foster a business environment in which cash flows smoothly along each part of the supply chain. Administered by the Irish Institute of Credit Management and sponsored by the Department of Jobs, Enterprise and Innovation (DJEI), Chambers Ireland, Ibec, ISME, SFA and The Banking & Payments Federation Ireland (BPFI), the Prompt Payment Code commands a strong and wide array of support.
The Code does not alter any business contracts nor modify the legal position of late payments; rather it ensures that businesses are publically committed to honouring payments within the terms agreed at the outset of the contract or within 30 days, in accordance with legislation. By voluntarily signing the Prompt Payment Code, a company signals to other companies, suppliers and consumers their serious commitment to paying invoices as agreed upon in their contracts. The potential benefit for those that sign up is that making this commitment can boost your reputation as a prompt payer and may lead to securing new suppliers .
Businesses that wish to contribute to changing the culture of late payments and reverse the trend of late payments can start by showing leadership through their own actions and by signing up to the Code here: http://www.promptpayment.ie/signup/
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