e-Day seeks to change payments culture
“The cheque’s in the post.”
It’s one of the most familiar phrases in Irish business life and, regrettably, one uttered all too often by those of a mendacious disposition.
But from September 19 it is a phrase that will be made redundant in the context of payments to and from Government departments, local authorities and other State agencies.
The National Payments Plan’s (NPP) self-styled “e-Day” was launched in September last year, to give businesses and public sector bodies 12 months to prepare for a smooth transition to electronic payments.
According to NPP Programme Manager Ronnie O’Toole, “Businesses and consumers will benefit when Ireland reduces its dependence on cheque and cash payments, to safer and more efficient electronic payments. Cheques are an expensive means of payment for businesses because of bank charges, stamp duty, postage, time spent making lodgements, unpaid cheques, and the ‘cheque is in the post’ culture of late payments.”
Even though cheque usage has halved in Ireland since 2005, Irish businesses still write 33 million cheques every year. According to Mr O’Toole, we have one of the most cash and cheque intensive economies in Europe more and, in a telling observation, the average Irish person extracts as much cash from an ATM in one month as a Dane takes out a year.
Cheques are also the root of other bad habits, notably late payments. Irish businesses take 2.5 months to settle invoices; other, less cheque intensive economies take 1.5 months. Ands, of course, even when the cheque is written, there is still a gap of some days to when funds may be accessed.
“If we want to solve late payments we have to get rid of cheques,” says Mr O’Toole. “The link between cheques and late payment is very real. No country that uses cheques to any great extent has a good payments culture.”
Of course, in theory Irish firms suffering from reluctant payers can fall back on legislation. The first EU Late Payments Directive was implemented in 2002. This was subsequently revised and the European Communities (Late Payment in Commercial Transactions) Regulations 2012 was transposed into Irish law with effect from 16 March 2013. It applies to all payments made as remuneration for commercial transactions in both the public and private sectors.
The Regulations provide for specific deadlines for the payment of invoices and also allows suppliers of goods and services to claim interest where payment terms are breached. For business to business transactions, the general payment deadline is 30 days, unless the contract states otherwise. If the agreed payment term is in excess of 60 days, such term must be “expressly agreed” and must not be “grossly unfair” to the supplier. This applies also to public authority payments.
Where these terms are breached, statutory late payment interest may be claimed automatically and without the necessity of a reminder. The interest rate chargeable is set at the ECB reference rate plus 8 percentage points, unless otherwise specified. Creditors are also entitled to compensation for expenses incurred as a result of late payment, plus additional reasonable recovery costs.
But the legislation does not appear to have had the desired effect of altering payment behaviour in Ireland, according to the Small Firms Association.
An SFA late payment survey conducted in November 2013, showed that 73% of firms who were aware of the legislation do not apply the interest penalty. The reasons for this vary:
• 59% of firms are reluctant for fear of losing business;
• 61% are reluctant because the customer is too big to challenge;
• 67% have concerns of gaining a reputation as being a difficult supplier.
The SFA noted that if a company is 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.”
The SFA called on the introduction of a cost-effective enforcement mechanism through the extension of the remit of the Small Claims Court for business debts up to €15,000 and for significant efforts to be made to change the late payment culture through the extension of the voluntary 15-day payment period to all Government Agencies, including the HSE.
Which brings us back to e-Day. Many will be overcome with an overwhelming sense of irony in the association of “Government departments, local authorities and other State agencies” with the notion of prompt payments: those same bodies are notorious in their tardiness.
At worst, e-Day should concentrate public sector minds on a serious issue. At best, e-Day may herald the beginning of a more transparent, compliant payments culture in this country.
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