A recent entrepreneur survey in Finland has exposed a concerning trend: large corporations are unlawfully extending payment deadlines, leaving smaller businesses financially strained. Over 50% of the surveyed companies revealed that laws governing payment periods between businesses were being flouted, with major companies treating small enterprises as their personal banks.
Tiina Toivonen, Head of Legal Affairs, expressed her concerns, stating, "Big companies are using small businesses like their own banks, often breaking payment term laws. Even some state and municipal entities are delaying payments beyond 30 days without formal agreements. It's become customary for large corporations to unilaterally inform small business owners that they will receive their funds later."
Industries hit hardest by these prolonged payment periods include manufacturing and construction, both of which are grappling with the economic fallout.
To address this issue, Toivonen emphasized the need for the current government to propose measures to safeguard the financial stability of small businesses. She highlighted a prevailing trend where payment periods are being extended, both within the confines of the law and illicitly. Even minor delays, such as a few weeks' extensions, can create problems for companies as essential expenses, including salaries, taxes, and other overheads, continue to accrue.
According to business representatives, 33% of them reported having their payment periods extended within the last two years, a significant increase from the 22% reported in November 2022.
Among the offenders, large private companies were the most common culprits, with 66% extending their payment deadlines, a significant uptick from the previous survey.
The law states that invoices between companies can exceed 30 days only if explicitly agreed upon by both parties. However, a third of businesses find themselves waiting for payments for more than 30 days. Among these, over half (51%) stated that the law was not adhered to when extending their payment deadlines. These unauthorized extensions are especially problematic for service-oriented businesses.
"In half of the cases where a company providing services or products had to wait for payment for over a month, there was no agreement for the extended payment period, despite the legal requirement. This is a significant issue that needs to be addressed," Toivonen emphasized.
The financial burden imposed by these lengthy payment delays is substantial. For businesses with payment periods exceeding 30 days, nearly half (43%) suffer financial setbacks. As payment deadlines increase to 60 days and beyond, over 60% of businesses face economic challenges.
"It's estimated that a quarter of bankruptcies result from companies not receiving their payments on time. With the current rise in bankruptcies from last year, we anticipate the statistics to worsen in the coming months. It's crucial to curb law violations and mitigate the harm caused to entrepreneurs," Toivonen added.
Toivonen suggested a solution: stronger regulatory oversight. Approximately half of the respondents agreed that authorities should monitor compliance with payment period laws. This proposal found significant support in the construction sector, with 65% in favor. The Finnish Business Federation echoed this sentiment.
"In the previous government term, the Ministry of Justice's working group proposed comprehensive measures to curb law violations through regulatory oversight. This proposed legal amendment needs to be swiftly implemented and presented to the parliament," Toivonen urged.
In September, the commission also recommended that member states ensure regulatory oversight of payment periods, advocating that agreements extending payment deadlines beyond 30 days should not be permitted.
"The proposal is largely sound and aligns with the objectives advocated by the Finnish Business Federation. By shortening payment periods and enhancing oversight, we can notably improve the financial capacity of smaller enterprises," Toivonen concluded.
- Extended payment periods affect nearly 100,000 small and medium-sized businesses.
- Industries hit hardest include manufacturing (40% of respondents) and construction (36% of respondents).
- Payment periods between businesses can exceed 30 days only if mutually agreed upon.
- Over 50% of companies report non-compliance when payment deadlines are extended beyond 30 days.
- The majority of violators are found in the service sector and among solo entrepreneurs.
The entrepreneur survey included responses from 1,207 small and medium-sized businesses from August 9 to 16, 2023, with a margin of error of ± 2.8 percentage points. The research was conducted by Kantar Public on behalf of the Finnish Business Federation.