Suppliers Getting Worse at Paying, Gov't Worst of All

The problem, as every freelancer knows, is that after 'current + 30' became the norm, it was quickly followed by 'current + 60,' 'current + 90,' and even 'current + 120.'

The payment ethic in Israel has grown worse than ever this year, and one of the most egregious sinners against suppliers is the government itself, according to data from Business Data Israel.

"Once upon a time the check would come in two or three weeks, then the concept of 'current + 30' was born," complained a freelancer in the movie business.

 Robi Nathanson

"Current + 30" - or plus however many days the client feels like paying - means the invoice will be paid at the end of the month in which it was issued, plus 30 days. If an invoice is dated January 15, it will be paid on March 1.

The problem, as every freelancer knows, is that after "current + 30" became the norm, it was quickly followed by "current + 60," "current + 90," and even "current + 120." This means that if the service was provided in the summer, it will be paid for in the winter, as Uzi Bachar, owner of a small printing house for the last 25 years, puts it.

In the first quarter of 2012, the average supplier credit was 102 days, says Business Data Israel. This marks an increase of 5% from 2011 and an extraordinary time period by international comparison. At the other end of the scale is France, where supplier credit averaged 28 days in 2011; in Greece it was 70 days and in Britain it was 41 days.

Gov't breaks own rules

As for the government, the Finance Ministry says there is a clear-cut rule: Government must pay suppliers no more than current + 45 days. Certain suppliers, such as providers of cleaning services, must be paid without delay. It is not typical for payment to be held back more than current + 45 days, claims the Finance Ministry.

That's the principle. The practice is something else. Research by the Israel Institute for Socioeconomic Research found that the payment policy at government companies and bodies supports the BDI's findings.

Supplier credit to government ranges from 45 days to 90, and is more often at the upper part of that range. The study gave examples, too. The Israel Nature and Parks Authority only pays invoices at month-end + 60 days, ditto the Dead Sea Preservation Government Company and Tel Aviv University. Suppliers to the government-controlled health care funds get their money in 90 to 93 days.

The Technion pays suppliers current + 45 days but the Haifa municipality makes them wait current + 75 days. The cities of Acre and Bnei Brak only pay invoices after three months and counting.

Bachar, the owner of the printing house, says he feels unprotected: The banks kill with their overdraft rates and companies he provides services to don't cavil at paying whenever they feel like it.

"Sometimes they only pay four months later," he says. Meanwhile, he senses that the payment ethic by Israeli companies has worsened along with the state of the global economy. "Everybody's stressed for money so they put off payments more," he says.

Working for government instead of private businesses might not bring him succor. Another study, by Roby Nathanson of the Center for Political Economics, confirms that the government doesn't obey the current + 45 days rule. Moreover, he found that while the government typically pays the big companies on time, it makes the smaller ones wait.

The pain seeps down

Nathanson brings the example of the framework agreement signed in March 2010 between the Finance Ministry and credit card companies - which are by any criteria big, powerful companies. The money in transactions up to NIS 15,000 would be transferred within two business days as of the transaction date, the parties agreed.

"We can see that when big bodies are involved, the payment policy is swift and fair," Nathanson wrote in his paper. "But that isn't so for small businesses and freelancers."

The upshot is it's harder for smaller companies - which constitute 90% of all businesses in Israel - to survive. That being so, the pain filters through to the public, reducing people's purchasing power, Nathanson concludes. "The shoddy payment ethic diminishes competitiveness and innovation, and constitutes a negative incentive for investors." It also teaches bad norms, he added.

Some 51% of respondents to a recent Manufacturers Association survey said they had difficulty staying within their approved credit limits at the banks, up from 38% in late 2010. The correlation with withholding payment to their own suppliers is clear. But government can hardly make that excuse for tardiness.