Over 60% of business owners waiting longer than statutory period for invoices to be paid

Industry and construction businesses particularly suffer from their business partners’ long payment terms.

“The way it’s done in Finland is a large company simply tells a small business owner that they’ll get their money later. Big business, in particular, treats small companies as banks by breaking the Payment Term Act,” says Tiina Toivonen, Legal Affairs Manager at Suomen Yrittäjät, the Finnish SME association.

“If it wanted to, the Government could improve the lot of business owners by amending the Payment Term Act.”

In the Yrittäjägallup business owner survey in March, 57% of respondents said that their 30-day-plus payment terms had not been agreed in the statutory manner. This share has grown compared to previous years’ surveys.

In particular, industry and construction businesses suffered financially from their business partners’ long payment terms. Suomen Yrittäjät calls on the Government to take action to improve the position of small business owners.

“The Government ought to legislate to secure small businesses’ solvency. The overall trend is that payment terms are getting longer — some of them legally and some of them illegally. Delays to shorter payment terms can also cause businesses problems, because they have wages, taxes and other overheads to pay,” Toivonen says.

Of the business representatives surveyed, around one third said their clients had extended their payment terms in the past two years. Large companies (62%) are the most common culprits behind extended payment terms. The survey also found small businesses are extending their own payment terms more frequently than before.

A total of 1,128 representatives of small and medium-sized enterprises responded to the Yrittäjägallup survey, which gathers SMEs’ views, in March. Of the respondents, 45% were solo entrepreneurs.

Payment terms

Extension of payment terms affects 135,000 SMEs.
The greatest financial harm from payment-term extensions is caused to SMEs in industry (49% of respondents) and construction (34%).
Business-to-business payment terms may exceed 30 days if both parties have agreed on it.
Almost 60% of companies say that the matter has not been agreed in cases where a business-to-business payment term has been extended to over 30 days.
The sectors with the highest proportions of business owners who say their contractual partners do not obey the Payment Term Act are specialst services (73%), other services (57%), construction (56%) and solo entrepreneurs (65%).

Only half have agreed

By law, payment terms on business-to-business invoices may only exceed 30 days if both parties expressly agree.

Around 70% of businesses whose contractual partners have extended their payment terms during the past two years say that they have had to wait more than 30 days for their receivables. In light of the survey results, industry has the longest payment terms: 85% of business owners in the sector say they have had to wait more than 30 days for their invoices to be paid.

Of these companies, over half say the law has not been observed when invoices have taken more than 30 days to be paid. That means the parties did not agree on the payment term as required by law. This is a particular problem in the service, construction and retail sectors.

“In half of the cases in which a company providing a product or service has been forced to await payment for over a month, they have not agreed to the longer payment term, even though the law requires it. This is a big problem which must be tackled,” Toivonen says.

“Responding to the survey, business owners say that state and municipal companies have also extended payment terms beyond the 30 days without specifically agreeing with them. We demand an investigation into this problem and demand that public-sector companies follow the law in an exemplary fashion,” Toivonen says.

Long payment terms lead to bankruptcies

Long payment terms harm SMEs financially. If the payment term is over 30 days, over 60% of SMEs suffer financial harm. When the payment terms are extended to 60 days and beyond, as many as 82% of companies are financially damaged.

“One in four bankruptcies are estimated to be caused by a company not getting its money on time. We’ve seen record high bankruptcy figures recently and we expect the number to stay high, at least for this year. That’s why it’s important that the breaches of the law and the significant harm they cause business owners end,” Toivonen says.

Official oversight a solution

Suomen Yrittäjät has long offered solutions to prevent breaches of the law. The association proposes establishing a government agency to monitor compliance with the Payment Term Act. Over half of SMEs agree.

In terms of sectors, industry (62%) and construction (57%) were the strongest supporters of oversight. Large SMEs, with ten or more employees, also supported the establishment of a supervisory agency (61%).

“Under the last government, a justice ministry working group made a detailed proposal for bringing law breaking under control through monitoring by the authorities. This legislative proposal should be placed before Parliament as a matter of urgency,” Toivonen says.

The European Commission has also proposed a new Late Payment Regulation which would require member states to establish agencies to monitor payment terms.

“The proposal is generally good and contains changes that Suomen Yrittäjät has lobbied for. Shorter payment terms and more effective enforcement could strengthen smaller businesses’ solvency in particular.

However, the Late Payment Regulation is currently stalled by member states’ disagreements about several aspects of the Regulation.

“Long payment terms and brazen disregard for the law are problems which will not be solved by waiting. That is why we must take determined action at the national level to secure the solvency and business conditions for SMEs in particular.”

How the survey was conducted

The Yrittäjägallup entrepreneur survey was carried out by Veriana on behalf of Suomen Yrittäjät. The survey attracted responses from 1,128 SMEs between 12 and 19 March.

The confidence interval for the overall results is +/- 2.9 percentage points.

You can read the results in more detail here.

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