Illegal payment terms becoming more common

SMEs that responded to the Yrittäjägallup survey say 29% of contract partners and customer companies have extended payment terms over the past two years. Large companies are the most common culprits behind extended payment terms.

“The way it’s done in Finland is a large company tells a small business owner that they’ll get their money later. SMEs are under pressure, and the Government must allocate resources to overseeing compliance with the Act on Payment Terms in the budgetary talks,” says Tiina Toivonen, Legal Affairs Manager at Suomen Yrittäjät, the Finnish SME association.

When payment terms are between 31 and 90 days, they have been extended by a large company in particular in more than 70% of cases.

“Large companies in particular use small businesses as their banks,” Toivonen says.

SMEs that responded to the Yrittäjägallup survey say payment terms are also being extended in state-owned and municipally owned companies.

“It would be important for state-owned and municipally owned companies to set an example by paying invoices on time and not keeping small business owners in a tight spot.

“For small businesses, extending payment terms is partly a vicious circle. If they don’t receive their money on time, they can’t pay their own invoices on time.”

Illegal payment terms becoming more common

By law, payment terms on business-to-business invoices may only exceed 30 days if the parties expressly agree. The survey shows that this has not been done in 65% of cases. This is the highest percentage in the entire history of the Yrittäjägallup survey.

Agreements on payment terms of more than 30 days have become less common in the past year, meaning the law is being breached more often. Long payment terms are most commonly agreed in industry, primary production and retail. Agreement is least common in professional services, other service sectors and construction.

Responses from companies reporting that payment terms have been extended by large or small companies show that the share of companies extending payment terms without express agreement is the same among both large and small businesses, at 60% in each group.

Long payment terms lead to bankruptcies

Nearly half (49%) of industrial SMEs say extended payment terms have caused financial harm.

The harm rises sharply as payment terms lengthen. Almost 70% of companies experience harm when payment terms exceed 30 days, and as many as 82% experience harm when payment terms are 90 days or longer.

“Up to one in four bankruptcies is estimated to be caused by a company not getting its money on time. Bankruptcy figures have been at record highs, and we estimate that the number will remain high at least this year. That’s why it’s important for the breaches of the law and the harm they cause business owners to end,” Toivonen says.

Official oversight

Suomen Yrittäjät proposes establishing a supervisory authority to monitor compliance with the Payment Terms Act. More than half of SMEs also support oversight.

Support is particularly strong in construction (66%), industry (59%) and SMEs employing ten or more people (61%).

Suomen Yrittäjät demands the Government take action at the budget talks to improve the position of small business owners.

“The overall trend is that payment terms are getting longer – some of them legally and some of them illegally. Shorter delays can also cause businesses problems, because they have wages, taxes and other overheads to pay,” Toivonen says.

The Yrittäjägallup survey was conducted by Verian on behalf of Suomen Yrittäjät between 1 and 9 April. It was answered by 1,059 SME representatives. The confidence interval for the overall results is ±2.8 percentage points. You can read the results in more detail here.

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