Companies with government contracts continue to endure credit problems, a priority issue for business groups during negotiations on the Small Business Act, with SMEs in most EU member states waiting even longer since the credit crisis began.
However, the redrafted directive allows companies to agree terms outside those set down in the legislation, which critics say amounts to an opt-out clause. Small businesses in the UK last week urged larger firms to commit to paying clients on time (EurActiv 16/9/09), and SMEs in several Eastern European countries complained of credit woes during the summer (EurActiv 17/7/09).
Now business groups in Malta are claiming that companies are reluctant to pursue legal action against public sector clients for fear of losing out on future contracts.
A new critique of the Late Payments Directive by the Malta Business Bureau says companies across several sectors are facing chronic liquidity problems. It says firms are resorting to bartering and exchanging property in lieu of paying sub-contractors because of cash shortages.
"Some other companies also complain that as a result of late payment, they are unable to restructure appropriately in order to face the new challenges of today's market demands. Credit problems exist in all sectors of the economy," the document says, singling out the pharmaceutical and construction sectors as being especially hard hit by public-sector late payments.
"Pharmaceutical importers are bracing themselves for a potential situation in which they would receive no payments before next year for all the products purchased and supplied to the government between now and the end of the year," according to the Times of Malta newspaper.
Private companies afraid to put pressure on public clients
Reginald Fava, chairman of healthcare business section of the island's Chamber of Commerce, Enterprise and Industry, said he was sceptical about whether the EU's new Late Payments Directive would force the government to change its ways regarding payments to the private sector.
He described the directive as a "step forward", but said companies can still agree to longer terms of payment if they wish.
"I do not consider this directive to be the solution to our problem. We are well aware of the fact that we can charge interest on late payments and we have known this since Malta joined the EU. However it is not the charging of interest that we are after. It is the prompt payment that we require when invoices fall due," he said.
Fava stressed that the directive does not prevent Malta's Department of Health from sticking to its current 150-day payment period.
"I would like to state in very clear terms that the latest directive on late payments shall not solve our problem unless the government has the resolve to be fair with our members and clear the backlog of pending invoices, and to settle its dues on time for future supplies," the health sector advocate said.
Anglu Xuereb, chairman of the Association of Building Contractors, was equally sceptical, saying the ultimate effect of the Late Payments Directive on the construction sector remains and open question because the new rules are “optional”.
"Business is entitled to take action to claim the flat rate compensation from the public authorities, and to claim the late payment interest and the reimbursement for recovery costs. However, it is a well-known fact that most contractors avoid entering into litigation with their main clients, in particular the public ones, for fear of not being invited to tenders for future works," he said.
Xuereb proposed removing the optional element and enforcing flat compensation rates in all cases, adding that if governments begin settling their bills in good time, this will filter down throughout the economy.