It is still unclear whether the EU-wide agreement to introduce a 30-day deadline for payments will have the desired effect of easing cash flow problems in Malta, according to a leading credit information firm.

Lengthy credit terms have almost become ingrained in business mentality and few companies would not want to upset the applecart, according to John Paris, managing director of Creditinfo.

Creditinfo provides business and credit information services to companies and Mr Paris deals with clients beset by cash flow problems on a regular basis.

“Although companies have the faculty at law to levy interest rates on outstanding credit, very few bother to go down that route. Many prefer to tolerate late payments even though they complain about it,” Mr Paris said, insisting the small market made it very difficult for some companies to replace defaulting clients.

After long negotiations between EU member states and the European Parliament, a deal was struck on the revision of the EU’s Late Payments Directive so debtors will be obliged to make their payments within a maximum 30-day period or face a hefty eight per cent penalty and a €40 recovery charge to be claimed by creditors.

The agreement, which has to be approved by the European Parliament at the October plenary session, was welcomed by Malta Business Bureau chief executive Joe Tanti, who described it as “an acceptable final compromise” that should be beneficial to small and medium enterprises.

Mr Tanti said it was premature to forecast any impact the amendments to the directive will have on business cash flow and pointed out that the agreement safeguarded the principle of contractual freedom.

“The 30-days limit is only applicable in the absence of a contractual agreement between the creditor and the debtor. The MBB reiterates the crucial importance of contractual freedom, whereby businesses should benefit from absolute freedom in deciding and mediating the ways and means of settling bills,” Mr Tanti said.

The lack of liquidity is a major issue for the private sector, according to Malta Employers’ Association director general Joseph Farrugia, who also spoke of a mixed scenario.

“The directive will benefit those companies who have lists of creditors but it could also negatively impact those whose cash flow is seasonal or depends on foreign clients,” Mr Farrugia said, adding that credit had to be managed because it could ruin a business.

However, companies could benefit from the directive if public entities notorious for their delay in paying clients stick to the deadline, even if the agreement allows a 60-day time window for public healthcare institutions to pay up.

“Contractors and businesses that are owed millions by the government will benefit, even though the authorities would have to analyse what impact this directive will have on their cash flow,” Mr Farrugia said.

Malta has serious problems with late payments, particularly with regard to millions of euros due by the government for medicines.

“By not paying on time the government makes a lot of companies suffer,” Mr Paris pointed out, insisting the public sector should lead by example.

The leeway granted to public healthcare entities is “regrettable”, according to Mr Tanti.

“This exception is a disappointment for local business given the extent of the problems of belated payments in the healthcare sector.

This is amply demonstrated by the results obtained in our study Settling Late Payments on Time, carried out last year,” he said.