Thursday, 14 October 2010
I am pleased the Minister of State, Deputy Billy Kelleher, is present to discuss this important issue. He was in the Chamber recently discussing the need to create jobs. The Minister of State's responsibility is for trade and commerce. However, we need to look at what is happening at home in terms of jobs. I was taken by ISME's report which was launched earlier in the week. It points the finger of responsibility at the Government. We should pay attention to the research conducted. ISME maintains that big business and State agencies are deliberately delaying payments. A total of 44% of companies are experiencing payment delays of more than three months. We need to examine the Government's responsibility in that regard. Government agencies are responsible for 23% of the delay in payments and multinationals for 28%.
We must find a solution. One of the calls ISME makes is for a 30 day mandatory credit period. Could that be provided so as to reassure small businesses? Cashflow is the lifeblood of any small industry and it needs to be protected. These are unusual times. A mandatory 30 day credit period should be considered. The Minister of State will be aware of the late payments legislation from 2002 which provides cover to a certain extent for this. Perhaps it was established on foot of a European Union directive rather than a locally motivated one. I welcome the fact that people carry out research on important matters. It is worthwhile examining how well the legislation has worked. If it is working then we have no problem. However, it is clear that we have a problem. The Minister of State is nodding in agreement. When the legislation was introduced the average delay in payments was 50 days. Unfortunately, in the most recent quarter the delay was 73 days. The good news is that the delay has reduced from 76 days but that is not good enough.
I heard from ISME about the situation faced by a relatively small company. It needs a credit facility of €40,000. The engineering company in question is owed hundreds of thousands of euro by its creditors. It has orders that would maintain 30 jobs but the credit facility is unavailable. We must do something about the employees. The managing director of the company is afraid he will have to let them go by Christmas. I know the Minister of State would do anything to keep those 30 high-end jobs. It is a viable business, but the company cannot get access to credit. That is the other problem it is facing. I accept the Government is trying to deal with the issue. In terms of solutions I wonder whether it is possible to consider the Small Claims Court. How effective can the law be? A small bakery that supplies a major supermarket which is not paying does not enjoy an even playing field; it is David v. Goliath. We must examine the possibility of having some of these claims looked at in the Small Claims Court if we can amend the legislation.
Since the introduction of the notification period by the Government to reduce the payment period, Departments have improved, but the State agencies, including the HSE, which control huge budgets should be included. It would be a simple but effective measure. There is evidence of improvement, but why are the State agencies allowed to remain outside the system?
Billy Kelleher (Minister of State with special responsibility for Trade and Commerce, Department of Enterprise, Trade and Employment; Cork North Central, Fianna Fail)
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I thank the Senator for raising this important issue. The issue of late payment has been a source of concern for small businesses for sometime because of many factors such as the economic downturn and the lack of credit in the broader economy. This has created huge difficulties in accessing credit and receiving payment in the small and medium enterprise sector.
To assist businesses and set a good example for other purchasers, in accordance with the Government decision of 19 May 2009, all central government Departments are required to pay their business suppliers within 15 days of receipt of a valid invoice. This commitment has had effect on all valid invoices received on and from 15 June 2009 and is helping to ease cash flow difficulties for enterprises.
To date four sets of returns have been published on the Department's website. The fourth set of returns covering the second quarter of 2010 were published on 31 August. They show that, in value terms, Departments paid 97% of invoices within 15 days, compared with 96.7% in the first quarter of 2010, 97.9% in the fourth quarter of 2009 and 97.8% in the third quarter of 2009. The total value of these payments made within 15 days was €816 million, involving 47,269 payments. Nine Departments were paying in excess of 90% of invoices by value within 15 days, four Departments were paying in excess of 80% of invoices by value within 15 days and two Department had paid 79% and 62%, respectively, of their invoices by value within 15 days
Departments are playing their respective parts in assisting the cash flow of their suppliers, many of which are small and medium enterprises. The new procedures and processes introduced are having an impact in assisting Irish SMEs to access cash flow in the current difficult economic environment and this development must be welcomed. Enterprise Ireland is assisting small and medium enterprises to make applications and tender for Government contracts. We are also looking at ways to pare down tendering contract size. A section in Enterprise Ireland is dedicated specifically to public procurement.
It is the responsibility of each Department to meet its obligations under the terms of the Government decision. However, any businesses which experience difficulties in receiving payment on foot of valid invoices within 15 days should contact the contracting Department to resolve their difficulties.
The ongoing publication of the composite returns by the Department provides clarity about the performance of individual Departments in meeting the terms of the Government decision. The arrangements operate on an administrative basis and do not alter the contractual relationship between Departments and their suppliers or the 2002 late payments legislation. No penalty interest applies in cases where payments are made outside the 15 day administrative period but within the normal 30 day period. Late payment interest generally falls due after 30 days have elapsed from the receipt of an invoice. The 2002 EU regulations on late payments also provide for compensation for debt recovery costs. Greater use of these provisions would assist in achieving a better culture of earlier payments.
The HSE has recently reduced its payment period to suppliers from 45 days to 30. The issue of extending the 15 day prompt payment period to the wider public sector is under consideration.
The issue of a mandatory 30 day payment period was mentioned. I can see the merit in this, but there would also be serious pitfalls. A contractual agreement between two individuals could be affected if they have decided to extend credit terms. Equally, if a supplier has agreed a contractual arrangement for 60 days credit, such a mandatory payment period would override it. While we want people to pay promptly, there are practical reasons this not happening. Unfortunately in the present climate, some companies are not capable of paying in less than 30 days because they may face credit flow difficulties. These companies would be in breach of mandatory payment legislation, even if the supplier had agreed to extend the terms of credit with an additional interest payment.
We understand the SME sector is under pressure, but that goes back to the original decision to make sure there is a flow of credit into the economy which is starting to trickle out. I accept that for many months there has been cash starvation and a withdrawal of capital in the economy. Mr. John Trethowen has stated publicly that he senses there is a freeing up of credit. With stability returning to the banking system because of the actions of the Government and some of the more responsible Opposition parties, there will now be access to credit. If suppliers are dealing with Departments and not experiencing prompt payment, there is a mechanism in place for them to make a complaint and they should do so forthwith.
I agree that many Government agencies have improved, but we cannot be complacent. For someone who is one of the 40% not being paid by the Government agency the Minister of State mentioned, it is a problem. I welcome the movement to a prompt payment system, which is obviously necessary. If a business makes a contractual agreement, it can stand, but if we were to adopt best practice, it would work best for everyone. I ask the Minister of State to consider this because a contract is a contract and paying within 30 days is as important a part of it as anything else. If there was a legal framework to support businesses in these circumstances, it would be of great assistance.