The government has started paying bills within 30 days – or paying eight per cent interest on late payments when it does not – but this is still not having a ripple effect down the business chain, the Malta Association of Credit Management lamented.
MACM director general Josef Busuttil said that in the past it would take the government six to nine months to settle its dues, and even longer for some sectors like pharmaceuticals.
But it was now mainly sticking to the periods laid down by the EU: 30 days for most sectors and 60 for the rest.
This used to be one of the main causes that led to credit periods in Malta being among the worst in Europe, he said, but the shame is that the cashflow being freed up by the government is not working its way down the chain.
The MACM recently reported that the average time it takes for a business bill to get paid was 82.30 days at the end of 2017 – 6.74 days less than a year earlier.
A grocer turns over his entire stock in, say, two weeks, and yet they ask for anything up to 90 days of credit. Why?
The so-called average Days Sales Outstanding across all the Maltese business sectors was derived from a survey conducted by the MACM amongst its members.
“A DSO of 82.30 days is still relatively high when compared to the average DSO of other European countries. In fact, the average DSO for Malta comes very close to that of other southern European countries, including Spain at 98 days, Portugal at 76 days and Greece at 115 days, according to the European Payment Index issued by Intrum Justitia,” the association said.
Mr Busuttil said there were various causes for late payments, the main one being undercapitalisation of companies.
“You can set up a company with just a few hundred euros and then get credit for tens of thousands of euros. So the potential problem is there from the outset,” he told the Times of Malta.
However, there is also a lack of understanding about credit management and the skills it requires – especially when you take into account that some 40 per cent of a company’s assets are held by debtors.
“Getting your receptionist to phone up chasing payment is not credit management,” he stressed, adding there was no correlation between the turnover and the credit periods.
“A grocer turns over his entire stock in, say, two weeks, and yet they ask for anything up to 90 days of credit. Why? Is it justified because of stiff competition?”
“The long time it takes to get paid is not being felt as much now because things are going well. But if there were a downturn, it could limit investment, and could result in companies having to lay people off.
“That is why people need to do due diligence on companies before giving them credit and must have a clear credit application policy. Has there been a history of late payments, of court judgments? What is their paid up capital compared to your bill?”
Mr Busuttil said the majority of clients mean well but are simply disorganised. These tend to pay when they are chased. Some others are disgruntled with the service and do not pay because of a dispute. In this case, communication is the key – as is having a good customer relationship.
“Get out there and talk to them. This is not something that can be done from behind a desk crunching numbers,” he stressed.
Only a small percentage – he estimated under three per cent realistically – who have no intention of ever paying.
“These are crooks. Don’t waste your time trying to get your money. Pass it on to your lawyers,” he advised.
The international federation for credit management, FECMA, will be holding its annual conference in Malta on May 16-17. For more details, visit http://congress.femca.eu .