Good news for small-medium businesses

January 31, 2016  

New “payment ethic” guidelines to small and medium-sized businesses was approved by the government on Sunday.

Brainchild of the Ministry of Economy and Industry’s Small and Medium Businesses Agency, the new guidelines seek to provide a solution for one of the acute problems with which small businesses grapple: the widespread practice of delaying payment.

According to the Agency’s figures, businesses in 2015 waited for payment an average of 72 credit days after the transaction had been carried out.

Until now, rules have regulated the dates of payment only for government transactions, which were to be paid within 24-45 credit days. Even here, the facts on the ground showed that a full two-thirds of payments were made after the specified time.

Other public bodies, including local authorities, statutory corporations, and government companies, had no time limit for payment. In practice, payments were made as late as current + 90 [that is, 90 days after the end of the current month] or current + 120 days [shotef plus 120, in Hebrew].

Clearly, delayed payments are especially difficult for small and medium-sized businesses that lack the ability and financial strength to wait for long periods until they receive payment. While they provide “credit” to those they serve, the conditions they receive from banks are extremely poor relative to those of large companies. In 2014, small businesses paid 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 passed the credit period onto those who are given expensive credit.

In accordance with the new bill’s regulations, government ministries will now pay current + 30 days; for construction and infrastructure transactions, they will pay current + 70. Municipalities will pay current + 45, or plus 90 for construction and infrastructure transactions.

For transactions 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.

Bodies such as statutory corporations, government companies, funded bodies, institutions of higher education, and health funds will pay current + 45, unless determined differently in the contract.

Payments between businesses will be current + 45, unless determined differently.

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.

Prime Minister Binyamin Netanyahu, Acting Minister of the Economy and Industry, said, “This is an important law that will benefit businesses, strengthen them, and solve many credit crises for businesses in the country. One of the main problems for small businesses is not an actual lack of credit, but the need for extra credit due to poor payment ethics. Regulating the payment ethic in the economy will allow small businesses to invest their resources in what they need – marketing, product development, and increasing their number of clients. We in the government will be the first to implement our obligation.”

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.”

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