Addressing Late Payments: A Challenge for Small and Medium Businesses

Did you know that late #payments pose a significant challenge for SMEs in Ukraine? The issue of late payments is not just a local concern, it’s a pervasive challenge across the European Union as well.

In the EU, an alarming statistic reveals that, on average, one out of two invoices in commercial transactions is paid late or not at all. The consequences are staggering, with European businesses facing a cost of €275 billion annually due to chasing late payments. This issue is particularly daunting for #SMEs, as their financial resilience is highly sensitive to such delays.

📌 Reasons Behind Late Payments

Several factors contribute to late payments, including the power imbalance among companies, structural issues in the supply chain, disputes over the quality of goods and services, and the absence of written contracts. These challenges create a domino effect, leading to a cascade of payment.

🔏 The Late Payments Directive 2011/7

13 years ago, the #EU implemented rules to protect creditors, especially small businesses, through the Late Payments #Directive 2011/7. While public authorities are expected to pay within 30 days, companies can take up to 60 days, with exceptions. This directive has shown positive results, reducing the average payment duration, but due to the lack of a law enforcement mechanism, the problems with timely settlement have still not been fully resolved.

Currently, the European Commission is proposing to adopt a late payments regulation (the project was published in September 2023), which should provide for the obligation of member states to appoint an authority responsible for ensuring compliance with the prohibition of late payments, to resolve the issue of the enforcement of the relevant provisions on settlement deadlines.

🇺🇦 Late Payments in Ukraine

The information regarding late payments in Ukraine is less transparent than in the #EU. However, experts estimate that payments can stretch from 60 to 150 days after goods delivery, significantly impacting businesses. Unlike the EU, Ukraine lacks legislation similar to the minimum standards, resulting in elevated risks for SMEs and finance companies.

Late payments tend to increase during times of crisis, and the COVID-19 pandemic has exacerbated the situation. In Europe, the delays spiked in 2020 and have remained high since then. In the midst of economic challenges and war, bad payment habits worsen, affecting both businesses and the public sector.

✅ The Way Forward for Ukraine

Drawing inspiration from the positive European experience and Ukraine’s candidacy for EU membership, adopting legislation regulating late payments and providing for a law enforcement mechanism could be a possible solution. Such legislative changes could not only promote a culture of prompt payments but also address abusive contractual practices, empowering small businesses to protect their rights.

#latepayments