The maximum legal payment period from big business to small and medium-sized enterprises (SMEs) has been reduced from 60 to 30 days. As of July 1, 2022, the statutory payment term of 30 days will apply between companies and between companies and governments. Existing agreements are subject to a one-year transitional arrangement. 'We see that many companies are unfortunately not yet ready for it,' says Ronald den Hartog of ICreative.
The rationale behind the new legal payment deadline for large companies to SMEs, is clear. Late payments negatively affect the cash position and thus the viability of SMEs. SMEs generally have smaller reserves and are therefore more dependent on continuous cash flow. Shortening the payment period to 30 days gives SMEs more financial breathing room and better visibility into the company's cash flow.
Adaptation of procurement terms and conditions
Several large organizations currently still use payment terms based on the volume of purchases they make from a supplier. However, the change in the law requires them to use payment terms of up to 30 days for SME suppliers.
This means that many large companies need to take stock of which of their suppliers belong to SMEs and then adjust the purchasing conditions accordingly. Den Hartog: "We see in practice that many companies are not yet ready for this law. When we talk to them, it turns out that they often do not have a clear picture of exactly which suppliers are subject to the reduced payment term.
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Confusion
Whether a company belongs to the SME sector often leads to confusion. According to the law Against Unreasonably Long Payment Terms (TOLB), companies belong to the SME category - in accordance with annual account law - if they meet two of the following three criteria on two consecutive balance sheet dates: they employ no more than 250 people and their net annual turnover is less than € 50 million and/or their balance sheet total is no more than € 43 million.
The turnover test according to TOLB also requires companies to look at the turnover of subsidiaries that hang under the SME supplier. Those figures are not always easy to see. Conversely, if the supplier is part of a company that belongs to the large company, then it may not be considered a large company (thus not subject to a maximum 30-day payment period). In addition, misunderstandings sometimes arise because other regulations use SME definitions that differ slightly from the definition in the TOLB, such as the SME test of the Rijksdienst van Ondernemend Nederland.
Ambitions
According to the Payment Behavior Barometer from business information specialist Graydon, the average time taken to pay business invoices was still 39.3 days in the third quarter 2020. 'For some time, we have noted that the average payment term in the Netherlands is well above 30 days. According to MKB Nederland, the average payment term from public clients to construction companies is 75 days. We see this as an additional indicator that many companies are not yet ready for this law,' says Ronald den Hartog.
Den Hartog believes that businesses should help each other especially in the current economic climate. 'Small business owners are more likely to get into trouble the longer they have to wait for their money. It would be a lot nicer if companies enabled themselves to pay even earlier than the allowed 30 days. There are enough technological solutions today to make that happen and optimize the financial supply chain,' Den Hartog explains. 'The new law therefore seems to me a good driver to update the ambitions once again.'
Want to know more?
Together with Graydon, I conducted a webinar on corporate payment behavior. You can watch it back here. Of course, you can also contact me directly.
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Ronald den Hartog |
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