State Secretary Mona Keijzer of Economic Affairs and Climate Change and Minister for Legal Affairs Sander Dekker are working to limit the payment terms that large companies are allowed to agree with their smaller suppliers to maximum 30 days. This follows quite soon after the Large Companies Payment Terms Act (an initiative bill from the House of Representatives) came into force in 2017. At the time, the maximum payment period for large companies was set at 60 days, but For many smaller companies, even that deadline proved too long.
Small suppliers in the tongs
In his opinion piece in the last newsletter, our managing director Paul van Uden called for to (much) more cooperation in the business chain. 'Only with solidarity across the business community can the economy be kept going and we will overcome this crisis,' he wrote. He made that call for good reason. Capital-rich buyers who can exert power over smaller suppliers regularly make abuse of their position by negotiating long payment terms through their purchasing conditions. Many small suppliers have to negotiate these conditions of necessity accept, because otherwise they will no longer be able to do business with these (often important to them) customers.
As a result, a large number of suppliers are forced to finance their receivables from these customers. Moreover, during the corona crisis, they faced a number of large companies stretching their payment terms beyond the legal limit of 60 days. This is exceptional, by the way; according to figures from financial services provider Graydon, payment terms from large to small companies rose to an average of 41.5 days in 2018. In the decade before, the term was actually falling to 36.5 days.
To top it all off, some large buyers prohibit their suppliers from pledging or selling receivables from them, preventing them from being financed and (rapidly) worsening their financial position. This is the so-called pledge ban, which thankfully seems to be coming to an end. You can read more about the abolition of the pledge ban in this article from our June 2020 newsletter.
'Agree with entrepreneurs'
An end to the pledge ban combined with a shorter 30-day payment period would help business immensely. Especially now, it is important for suppliers and buyers to help each other get through this crisis. 'I agree with SME entrepreneurs when they feel they need to need to get their money faster for delivered products and services,' state secretary Keijzer said over a year ago. 'If it turns out that large companies increasingly use the current maximum term of 60 days as the norm, I will adjust the statutory payment term to 30 days.' Before that happens, the Ministry of Economic Affairs will have a study conducted into why large companies do not pay their small suppliers faster.
Abolishing the pledge ban and halving the payment period does not mean that suppliers will not continue to need working capital financing and that debtor risks will disappear. However, it does make it easier to insure and finance these credit risks. Xolv will be happy to help you with that!
