A QUESTION for all small businesses or freelance independent workers: are you owed money by large companies? Yup, me too. In my 10 years of working here in the Algarve, I have never known it so bad. As usual, the little guys are looking after their fellow little guys while the big guys look after themselves.
If these companies put as much commitment into settling their long-overdue invoices as they did into inventing reasons not to pay, the whole money merry-go-round would keep moving and the economy as a whole would be much healthier. In fact, I am compiling a list of excuses that I have heard from friends or been given personally over the past months – if you would like to add to this collection, please feel free: perhaps we can award a prize to the most inventive ones!
It is a known fact that the Algarve relies heavily on what are officially called SMEs (small and medium-sized enterprises) – in fact, most of the enterprises in the Algarve fall into the “micro” category because they only have a handful of employees. These “micros”, or freelancers, generally provide specialist services – commercial copywriting, as I do, photography, design, or perhaps villa management and so on.
They – we – have several things in common. We provide services rather than products: once our work is done, it cannot be taken back. If someone defaults on payments of office furniture or a car, for instance, the company reclaims the goods. If I have written a brochure for a company and it has been published, but I have not been paid, it is a different ball game.
The economy of the Algarve, as we know, depends, one way or another, on tourism, real estate and golf. For each resort built, there is an architect, a building company and a project manager. Each villa or apartment needs doors and windows, furniture and soft furnishings. Then comes maintenance and repair – property and pool cleaning, garden care and so on – not to mention the lawyers, banks and accountants. For tourism, we have hotels and apartments with all the support staff and services; car hire; tours and so on. All of this is supported by the infrastructure of shops and leisure facilities.
When a client does not pay his villa management company for six months or more, that client still expects his utility bills to be paid and the property to be kept in perfect condition. How is the villa manager meant to pay the cleaning and maintenance staff, let alone the bills, without the co-operation of the owner? If someone organises an event for a company launching a product or a service, and the client delays payment, the organiser still has to pay the caterer, the entertainer, the marquee hire, the florist and so on.
Some large companies call it financial management – “screw the little guy, we are going to hang onto the money.” Not paying, they have a deliberate policy of lying and using every tactic in the book to waste as much time as they can.
However, help is at hand. Are you aware of the EU Directive 2000/35/EC? No? Nor was I until recently (it was a tip-off from the British-Portuguese Chamber of Commerce that alerted me to it, and I am happy to pass it on). Its full title is The European Directive Combating Late Payment in Commercial Transactions, and it came into force on August 8, 2002. Let’s face it, if even the EU recognises a problem, then it must be big – and it is. The EU states that one in four insolvencies is due to late payment of bills and that, in turn, leads to the loss of 450,000 jobs each year. Outstanding debts of 23.6 billion euros are lost every year through these insolvencies – and those are 2002 figures!
What does the Directive do? It gives a statutory right to interest on all outstanding payments. The Directive gives a benchmark 30 days as a payment period, after which interest can be calculated at the agreed rate. The Directive makes it clear that no reminder will be necessary in order to collect interest on arrears, since late payment in itself constitutes a breach of contract that should automatically be sanctioned. The accepted rate of interest chargeable by small guys is 12 per cent, calculated on a monthly compound basis. For those of you who are not mathematical, let me give you an example.
It is now the end of March 2005. You have a debt of, say, 2,000 euros that dates back to July 2004. Interest becomes payable as from the end of August 2004. So just see how this mounts up in table 1.
Interesting, isn’t it? And it is totally legal, fully operational in Portugal and enforceable by law.
There are, clearly, more clauses to the Directive than I have space for here, and I would always advise you to consult a decent lawyer or accountant if in doubt, but the principles are sound.
It is not often I am in favour of EU Directives, but, in this case, may the force be with you!