SMALL FIRMS
ASSOCIATION
Submission to the
Department of Jobs, Enterprise &
Innovation
on the
Combating Late Payments in Commercial
Transactions
31st May 2012
Introduction
The Small Firms Association (SFA) is the largest small business organisation in Ireland
representing over 7,500 companies and 6 affiliated organisations. Our response has been drawn
together following consultations with member firms, who are owner-managers employing less
than 50 people.
The SFA welcomes the opportunity to make a submission to the consultation on the transposition
into Irish law of Directive 2011/7/EU on Combating Late Payments in Commercial Transactions.
Getting paid on time is a never ending problem for most small businesses. Research conducted by
the Small Firms Association shows that late payment continues to be a problem for many small
firms with over one in five experiencing payment terms being exceeded significantly over the last
five years.
Late payment causes serious cash flow problems; requires firms to extend overdraft facilities or
engage in additional borrowing and consumes a great deal of management time. This in turn
affects the ability of the business to compete, be profitable and expand.
Enforcement
Legislation to combat late payment in commercial transactions was introduced in 2002. Overall
the legislation does not appear to have had the desired effect of altering payment behaviour in
Ireland. This may be as a result of the Irish payment culture, which will need to change if
companies are to pay in a timely manner.
For many small firms the current late payments in commercial transactions legislation does not
cause concerns - it is the enforcement where the issues arise.
Many firms choose not to apply the interest penalty allowed under the legislation, the recent SFA
late payment survey (conducted in September 2012), shows that 73% of firms do not apply the
interest penalty. The reasons for this vary, from lack of knowledge to:

53% of firms are reluctant for fear of losing business;

63% are reluctant because the customer is too big to challenge;

67% have concerns of gaining a reputation as being a difficult supplier.
Also, if a company are unsuccessful in gaining payment through the provisions of the law, the
company must pursue the outstanding debts through the court system. Irish companies have
problems gaining access to court due to administrative backlogs, the lengthy delays in setting up
court dates and the relevant costs.
Prompt Payment Initiative
The SFA called for the introduction of a 15 day prompt payment initiative and welcomed the
announcement by Government that it would be implemented in 2009 by Government
departments. Despite, the total payments that have been paid within this timeframe, which has
assisted the working capital and cash flow of SMEs, there is still a frustration that the Health
Services Executive (HSE), one of the largest Government spending agencies has not as yet met
the 15 day payment timeframe.
In addition, the HSE have not published any report on their prompt payments, while the Minister
has stated that the department is addressing the matter they have not committed to any date as to
when this report will be made available on their site. As a result, no clarity can be sought on their
payment timeframes.
Code of Practice for Business
The SFA support the Prompt Payment Charter as outlined in point 6.4 of the Action Plan for
Jobs. It is essential that this charter fits with the provisions of Directive 2011/7/EU and that the
benefits of signing up to this charter are highlighted for businesses, particularly small firms to
ensure extensive impact.
Information Campaign
40% of SFA members surveyed were unaware of the current late payment legislation. Therefore,
prior to the new directive being implemented it is essential that an information campaign is
conducted to increase awareness of changes in the legislation and remind businesses of their
rights and entitlements under the legislation.
The SFA would not have concerns with an early implementation of the Directive as long as a
sufficient information campaign has been undertaken to advise businesses of the changes.
Alternative Dispute Resolution
Small Claims Court
One of the reasons why the late payments legislation has not been as effective as originally
intended, is due to the lack of a cost effective redress system. If a company wishes to purse a
claim, it is difficult to do so as in the main there are no simplified legal procedures. While the
facility for companies to take a claim on a business debt to the Small Claim Court is welcome,
the limit of €2,000 is not sufficient. The SFA would propose that this limit is increased to €5,000
to facilitate more cases be addressed through this channel rather than the district court or the other
courts.
Adjudication
The SFA would strongly suggest that the route of adjudication should be introduced into all
commercial contracts to assist with dispute resolution for all aspects of the contract, however
particularly in relation to payment disputes.
This principle of enabling payment to be determined quickly and the substance of the issue
resolved at a later date under an alternate dispute resolution mechanism as outlined within the
contract, has been widely used in the UK and Northern Ireland. This principle of “pay now argue
later” has also been adopted through the Construction Bill, 2010.
Under Section 8 of the Construction Bill, 2010, a party has the right to refer a dispute to
adjudication, this can include a payment dispute. The referring party must give 7 days notice to
the other party of their intention to send the matter to adjudication. A decision will be reached
within 28 days by the adjudication from date of referral and if the referring party agrees this can
be extended by 14 days.
Once a decision is provided, all parties must comply with it. Parties can agree that this decision
is final or alternatively either party may further pursue the matter through other forms of redress
including litigation.
The aim of Section 8 is to assist cash flow and to provide a mechanism for redress that is not
costly or time consuming, this form of resolution may be suitable in regard to late payments.
Late payment appears to be a self-perpetuating problem. When a firm receives late payment, the
companies merely shift the problem on to their own suppliers. Unfortunately overdue accounts
are a fact of life for every small business in Ireland, but the inadequate response by firms to late
payment is itself a cause for concern, and one that needs to be addressed.
Overall the legislation does not appear to have had the desired effect of altering payment
behaviour in Ireland. It would appear that a culture change is required to encourage companies to
pay in a timely manner and a more cost effective redress system is required to encourage greater
prompt payment.
I hope that the above is of assistance, if you wish to clarify any issues please do not hesitate to
contact me.
Kind regards.
Yours sincerely,
Patricia Callan
SFA Director