PERSONAL FINANCE:The days of the 30 day invoices are long gone and with big companies regularly delaying payment for up to 73 days – and it can mean ruin for smaller businesses, writes PATRICK FREYNE

THOSE IN PAYE employment go to work and get paid at the end of the month. But for the self-employed it’s a bit more complex. According to the Irish Small and Medium Enterprises Association (ISME), small businesses have to wait an average of 73 days for payment, while 44 per cent of small businesses were waiting three months or more.

This has a domino effect as each late payment leads to more businesses delaying the payment of their own creditors.

“Trade invoices are being used as extended credit terms now,” says Eddie Barron, chief executive of the debt recovery law firm AB Wolfe. “Some businesses are using their debts like a bank overdraft and it really isn’t fair to the small trader.”

Mark Fielding, chief executive of Isme, says that this is being exacerbated by many large and relatively successful companies taking advantage of the situation.

“We have copies of letters on file to our members from the likes of Diageo, Pfizer, CC to name but three, all extending their existing credit terms,” he says. “We call this ‘accountancy-driven big business’. It’s not that they’re short of cash, it’s that they can use the cash they should be sending out in payments. Unfortunately, down the line there are the smaller businesses who in turn aren’t paying their creditors because they’re not getting paid themselves.”

In principle he advises his members to place the following statement into their terms of trade and invoices: “I expect to be paid under the Prompt Payments Bill within 30 days.”

“If your customer accepts that, then the law takes its course, supposedly,” he says. “And the law states that if you then don’t pay within 30 days you’ll be charged interest at a rate of seven per cent above the interbank rate.”

Unfortunately, the 30 day payment rule is not an industry norm and companies are not obliged to accept it.

“It was something we asked for back in 2002 when new payments legislation was being brought in,” says Fielding. “At the time the average wait was 52 days and we were trying to get that down to 30. But the government caved in to lobbying from big business who wanted to be able to opt out, so instead of creating a faster payment period, large businesses opted out and the credit period went from 52 days to 73. Basically big businesses just tell the small fella to ‘feck off. You don’t tell us what the terms of trade are, we tell you.’ They abuse their dominant position.”

In the absence of legal support, the most important thing a self-employed person can do is have a well-organised credit-control system.

“The first thing to do is to make sure that the documentation is right and that all the invoices are checked before they go out,” says Jack Foley, a credit control trainer with Professional Training. “Get the correct business name, the right bank account details. You’d be surprised how often not having the correct details ends up causing problems. Don’t give them any last-minute excuses or reasons not to pay.”

Fielding notes the importance of timely invoicing, a discipline which slipped a bit in the good years, he says.

“If you say you want payment 30 days from the date of the invoice but then don’t deliver the invoice for a month, the clock doesn’t start until that invoice is delivered. Also, if the creditor is getting the product and the invoice at the same time it’s all fresh in their mind, but if they don’t get the invoice for a few months they often can’t even remember the transaction and you have to waste more of your time reminding them.”

He stresses the need to keep in regular contact with the right person. “It’s not always the person you set up the transaction with,” he says. “Find out who actually authorises payment and keep in regular contact with them. Ring the day after they get the invoice to make sure they got it, that they know what your terms of trade are and ask when they’ll be paying. Then put a note in your diary to ring the day before that date.”

He who shouts loudest tends to get paid first, so it’s about persistence.

“If I’m told that a cheque is being sent out on the Friday, they need to know that I’ll be on the phone that Friday to make sure, and if it hasn’t arrived by Monday that I’ll be on the phone again, and by Tuesday I’ll be sitting in reception making a nuisance of myself.”

Jack Foley also advocates persistence but cautions against getting too emotional. “If you’re trying to collect the money to pay your staff or feed your family it’s obviously very difficult emotionally, but displaying aggression does not help. The first thing I say in my classes is ‘no ego’ because if you’re looking for money with your worries at the forefront of your mind, it’s likely to be a flashpoint. If you come on the phone effing and blinding, you give them a chance to postpone further and say ‘well, you were very unreasonable the last day’.”

Barron believes that legal action can “take the emotion out of things. Normally the debtor and creditor will have a relationship that feels more like a personal relationship,” he says. “We can take that out of the equation and deal purely on a business-to-business basis.”

At a certain point the only way to retrieve outstanding debts is by going down the legal route. This can start with a legal letter. “This involves issuing a letter demanding payment within 10 days,” explains Barron. “It isn’t that expensive. You’re talking 100s of euro not more. We’d issue between four and five thousand demand letters a month and in general the response rates are very good compared to the creditors’ own efforts. Often one letter from us can effect payment.”

In many instances, however, it does not. “Then the next stage is to go fully legal with the issue of a summons and then going through the court process to mark judgement against the individual,” says Barron. “It doesn’t take that long if it’s an undisputed case, which 99 per cent of our cases are. They don’t involve plenary hearing. They don’t involve a trial as such. It’s what’s called a default judgment. In Dublin it takes about eight to 12 weeks and if you gain a judgment against a debtor, costs will be awarded. Now, this won’t cover all of your legal costs, but it will cover a fair section of them [they cover a maximum of €335 costs].”

Mark Fielding isn’t so enthusiastic about this. “In theory you get the costs but in reality if the debtor can’t pay you don’t see it,” he says. “What we’ve found is that you end up spending a lot of money and getting a judgment, which means getting paid maybe a tenner a week because the debtor simply hasn’t got the cash. As for getting any interest on the debt, well that’s very unlikely to happen.”

Fielding would like to see the establishment of a small claims court for business-to-business transactions. “It would help clarify things without the costs,” he says. “At the moment the small claims court is only for consumers. If you buy something and it’s not working you can bring it to the small claims court, the judge adjudicates and makes an award. It’s very efficient and there are no legal fees involved. There should be something like that for business-to-business transactions. For anything up to €10,000 you should be able to bring a business to the small claims court.”

One way or another, there’s a need to tilt proceedings back in the favour of small businesses and the self-employed.

“As things stand, you have people all over the country not being paid for work they’ve actually done,” says Fielding. “It’s driving many of them to the edge of ruin and it’s basically unfair.”