Good News for Small and Medium-Sized Businesses: Government Authorizes Law of Payment Ethics, Changing to Current + 30

​​Prime Minister Benjamin Netanyahu, Acting Minister of the Economy and Industry: “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”.

Today the Ministries of Economy and Finance brought the bill for payment ethics to the government that comes to regulate the times 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 and 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.

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.