Small business now has some extra degree of comfort in managing its debtors through the new EU-sponsored “Late Payments in Commercial Transactions” legislation that came into effect on August 8th, 2002. This aims to change the slow-payment culture in Irish business – which we share with many of our EU partner countries – by introducing the mandatory payment of interest when a debt is outstanding for more than 30 days or a standard period agreed between buyer and seller. The Department of Enterprise, Trade and Employment says that the EU average payment time is 53 days with Ireland at 51 days. Ireland was one of the first countries to bring its public sector into line thorough the 1997 Prompt Payment of Accounts Act and now the private sector is subject to the provisions of the new law, which principally mean that the creditor is entitled to charge interest on all debt outstanding after 30 days.
One potential snag is that the statutory period can be overridden by any terms agreed between the trading partners. A supplier or buyer can challenge terms being imposed by a stronger trading partner that are ‘grossly unfair’ and various criteria and resolution methods are contained in the Regulations.
The Annual Interest Rate to be charged is the European Central Bank rate plus 7%. With the ECB rate now at 3.25% that means the current applicable interest rate is 10.25% which gives a daily rate of 0.0281%. It is applied to the gross sum outstanding, including VAT. Now that’s just EUR8.43 per EUR1,000 per 30 days, which most SMEs would happily trade just for the cheque in hand. But it’s certainly better than nothing. There is also provision for compensation for the costs of pursuing payment, either the actual costs where they are provable or a standard Flat Rate of EUR40 for amounts up to EUR1,000, EUR70 up to EUR10,000 and EUR100 after that.
The important point is that your accounts software should be capable of working out and applying the correct rate and amount of interest payable on each outstanding invoice and on the statement. So far, just Sage has formally announced that its products have this capability. Interest on late payments is not unusual in normal contract terms of business in various sectors, so the facility may actually be present in other accounts software suites also but may not be ‘switched on’ in a standard configuration. Since the UK also brought in the same legislation, most accounts software in use in Ireland should have this facility in the near future. You should check your manuals or with your supplier, or you may find the answer on the Website of the software publisher.
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