Israel: Cabinet Votes to Amend Payment Period to Ease the Burden on Small Amd Medium Businesses

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bibThe Ministries of Economy and Finance brought the bill for payment ethics to the government on Sunday, 21 Shevat, a bill that seeks to regulate the schedule of payment to suppliers – the small and medium-sized businesses. The bill is the brainchild of the Small and Medium Businesses Agency in the Ministry of Economy & Industry, and comes to provide a solution for one of the acute problems with which small businesses grapple. According to the Authority’s figures – in 2015, businesses waited an average 72 credit days after the transaction had been carried out before receiving payment.

Up until now, there have been no rules to regulate the dates of payment and only government transactions are regulated by a Financial and Economic Regulation that determines periods of 24-45 credit days (in accordance with the date invoices are submitted).

Despite this, the report by the “Examining the efficiency of payment processes to government suppliers” team, headed by the Accountant-General (1 April 2014), found that 67% of invoices are only paid by the government after the date determined in the regulation. Other public bodies, including local authorities, statutory corporations, and government companies, have no time limit for payment, and there is a variation in the number of credit days in actuality among the various state institutions that can reach as much as current month + 90 or current + 120 days.

It does not need stating that the practice of pushing off payments is especially difficult for small and medium-sized businesses that lack the ability and financial strength to wait for long periods until they receive payment. They must bear a heavy monetary burden, and search for alternative sources of funding until they receive consideration.

While small businesses have little ability to absorb the large credit period, the bank credit conditions that could support the small businesses are extremely poor relative to those of large companies. According to bank reports, in 2014 small businesses were asked to pay interest of 6.09% on loans they received, as opposed to 3.04% interest charged to large businesses. In this way, instead of the powerful bodies (public bodies or large businesses) taking upon themselves financing costs under relatively good conditions, they pass the credit period onto those who are given expensive credit.

Additionally, within the small business sector, there is an increasing population of freelancers whose work is comparable to that of salaried employees, but their working conditions (conditions of payment, social conditions, etc.) are like those of businesses and they are also forced to absorb long days of credit, when their ability to pay for this absorption is very poor.

Who pays and within what period of time?

In accordance with the bill:

Government Ministries will pay current + 30, and for construction and infrastructure transactions, current + 70

Local Authorities will pay current + 45, and for construction and infrastructure transactions, current + 90

Regarding transactions that are financed by a source outside the government, the authority will be able to delay the payment until it receives the budget from the outside source.

Public Bodies: Bodies such as statutory corporations, government companies, funded bodies, institutions of higher education and health funds, will pay current + 45, unless it was determined differently in the contract in light of the specific character of the contract, or if the other time for payment is not unusually unfair.

Between Businesses : Current + 45, unless it was determined differently in the contract in light of the specific character of the contract or if the other time for payment is not unusually unfair.

Over the next three years, the Agency will examine the bill’s effect, and following this examination, the Minister of the Economy and Industry, Minister of Finance, and the Prime Minister, in consultation with the Agency, will be able to change the rules included in the bill.

Director of Small and Medium Businesses Agency Ran Kiviti, noted that “these are dramatic tidings for small businesses! A state that encourages the establishment of small businesses and justifiably sees them, as in all over the developed world, as the economy’s growth engine, that creates economic activity and employment, must allow them better conditions to exist and grow in. The amendment to the law demands a change in people’s perspective and understanding, that business owners are an important and essential sector in an advanced economy, and should receive the appropriate respect. The amendment to the law does not come to ‘be kind’ to small business owners, but to allow them to expand and justly lead the economy to growth.”

The 2015 annual report on the state of Israel’s small and medium businesses will be distributed in the next few days.

(YWN – Israel Desk, Jerusalem)