EU late payment law may do SMEs more harm than good

If you strip down any business failure, the chances are that poor cashflow is ultimately blamed for the demise.

In reality, though, it’s a symptom rather than a cause, which tend to be much more complicated and can range from bad debt to unsustainable pricing, rising input prices, poor management, the loss of a contract… well, the list is virtually endless.

However, one thing that wouldn’t figure too highly on that list of doom is late payment. While there’s little doubt it’s a serious problem, it tends to be an irritating sore rather than a terminal illness.

So I can’t help but wonder what real impact the early introduction of the late payment directive will have on SMEs. Of course, it will mean that they will have to pay on time, but as highlighted in our Briefing on p8, it will take a brave sales director to walk away from a big deal just because the payment terms exceed 60 days and balls of steel to sanction charging interest on a key client’s outstanding debt.

The precise details of how the scheme will work are yet to be finalised, but I think it’s safe to assume that enforcement will be the directive’s Achilles heel. While I don’t doubt that creditors of SMEs will happily enforce the penalty terms, I can’t see many small businesses doing the same to their clients – especially when many are simply praying that they’re going to get paid at all.

If the directive is going to work then it needs to be enforced by a third party, otherwise there’s a strong chance that SMEs will continue to suffer and be their larger customers’ ‘banks’ of choice.

 Darryl Danielli is the editor of PrintWeek