Business Late Payments (280 billion) Stifle SMEs

Europe SMEs

Gerardo Cuerva (*) | For more than ten years, the fight against business late payment has been a priority for the Spanish Confederation of Small and Medium-sized Enterprises (CEPYME). It has been developing a strategy of monitoring and recommending good practices aimed at bringing about a cultural change to banish this negative business practice. This strategy has been reinforced in the last year with the creation and promotion of the Delinquency Observatory, which is working on the development and transfer of proposals to combat business delinquency, which has very negative effects on the financing and cash flow of companies, especially serious in the case of SMEs.

The aim of this strategy is to contribute to the progressive reduction of current payment periods, in accordance with those established by law, to promote the dissemination of the legal instruments available to businessmen to control late payment, and to encourage good practices that allow the culture of payment within the agreed deadlines to spread. Indeed, late payment is a scourge for businesses, especially for small and medium-sized enterprises, which have fewer resources and less bargaining power to cope with the loss of liquidity and the high indirect costs arising from these late payment situations.

During the pandemic, late payments were very high. This worrying trend has continued in 2021, reaching levels we have not seen for a decade. Although payment periods have been stabilising, reaching an average of 81 days by the end of 2021, they are still much longer than the legal requirements (60 days for business-to-business payments), so there is still a lot of work to be done in this area.

Moreover, and more worryingly, trade debt with late payment increased in year-on-year terms by 17.3% in the third quarter of 2021, the latest available data, to reach 279.808 billion euros. Thus, and taking as a basis for calculation the legal interest rate set by the Bank of Spain, we can estimate that the interest due for late payment would amount to 1.411 billion euros, which represents an increase of 16% compared to the same period of the previous year. In view of this situation, CEPYME considers it essential and urgent to address effective mechanisms to minimise the impact of late payment on SMEs, reducing their financial impact, which represents a financial stranglehold for many small and medium-sized enterprises.

In this regard, we are drawing up proposals within the framework of the Law on Business Creation and Growth, which take into account the reality of companies. In the end, the serious problem of business late payment requires a commitment from everyone to achieve a cultural and mentality change in the management of companies, which rejects this commercial practice as a serious evil for companies and for the competitiveness of our business fabric. It cascades its most pernicious effects on the smallest companies, which have the least resources and capacity to deal with these situations.

(*) Gerardo Cuerva is President of the Spanish Confederation of Small and Medium-sized Enterprises, CEPYME.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.