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Towards a more sustainable economy: tackling the scourge of late payments

With the introduction of the 30-Day Club, Intrum Justitia and two Swedish business associations have joined forces to help tackle the serious impact on small companies of late payments from business-to-business transactions.

For small companies, late payment for their services or goods is a serious and growing issue. So much so, Intrum Justitia’s European Payment Report 2016 revealed that 23 percent of small and medium-sized enterprises (SMEs) have had their very survival threatened by not being paid on time. Almost half of the 9,000 European companies in the survey said they were being asked to accept longer payment terms than they are comfortable with.

It’s not only the threat to the companies’ survival. Late payments also have a major effect on job creation. A third of companies surveyed said that they could hire more employees if they were paid faster for the work that they do. The report also concluded that SMEs across Europe are being particularly squeezed by large corporations’ cash flow management. Many SMEs believe that the withholding of payments after due dates is intentional.

Against the backdrop of these stark statistics, Intrum Justitia has teamed up with the Swedish Entrepreneurs’ Association and the Automotive Suppliers’ Association to establish the 30-Day Club. It’s an initiative aimed at encouraging companies to pay all outstanding debts from business-to-business transactions on time, and never after 30 days.

Mikael Ericson, CEO and President of Intrum Justitia, says, “Late payments constitutes a   market failure that costs job opportunities for millions of Europeans. We need fair and equal conditions for all in order to achieve growth long term – for all companies and for society.”   

“As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations set up conditions that do not promote a healthy cash flow for smaller sub-suppliers is not only wrong; it also creates an imbalance in society.”

 While Swedish law does address some of these issues, notably via legislation which says payments should be made within 30 days, the law is optional, not binding. In 2016, the average contractual payment period in Sweden was 28 days, but the average actual Swedish payment period was 34-35 days. Many small companies feel obligated into accepting legally-binding longer payment periods from larger companies.

The Swedish Government recently warned of its willingness to toughen the existing legislation. However, Intrum Justitia, like many in the business world, believes that with many industries dependent on continued freedom of contract, self-regulation is preferable.

This, along with the strong desire to drive the shift to a more sustainable economy, is a key motivation for the 30-Day Club. Those committing to the 30-day pledge are subject to the club’s rules and follow-up monitoring of payment.

“Small and medium-sized businesses are where jobs are created – so by paying on time and not requesting payment periods of longer than 30 days we support both growth as well as job creation. The 30-day promise is therefore a way for companies to take responsibility for creating the business-friendly economic environment that all companies depend upon,” says Mikael Ericson.