PYMNTS-MonitorEdge-May-2024

Late Payment Penalties In India Include Prison Time

Late Payments Data Digest

In India, government efforts to crack down on late payments made to smaller firms include fines and possible imprisonment for officers of larger, late-paying firms. In Scotland, the Federation of Small Businesses (FSB) wants late payers to be banned from receiving government contracts.

The Ministry of Corporate Affairs in India has instituted penalties tied to its legislation focused on delayed payments made by larger firms to their smaller suppliers. The penalties — which span imprisonment or monetary fines — will be applied to cases where larger entities do not pay within 45 days.

As reported by KNN India, the Ministry of Corporate Affairs said companies must file reports containing certain information, including why payments may have been delayed. The site said the law has “got teeth now.”

As the notification has stated, “The central government … [on Nov. 2, 2018] has directed that all companies [that] get supplies of goods or services from micro and small enterprises, and [with] payments to micro and small enterprise suppliers exceed[ing] 45 days from the date of acceptance or the date of deemed acceptance of the goods or services, … shall submit a half-yearly return to the Ministry of Corporate Affairs.”

Fines for violations can include monetary penalties of up to ₹25,000 ($351.80 USD), and “every officer of the company who is in default” may be punished with a prison term that “may extend to six months.”

In Scotland

In Scotland, smaller businesses have stated en masse that companies demonstrated as late payers should be banned from receiving public contracts. As noted by BBC, the Federation of Small Businesses (FSB) said companies should prove “in advance” that they are in fact “responsible” when it comes to paying suppliers in what has been called a “lamentable payment culture” landscape. The FSB added that late payments have caused cash flow issues at as much as 36 percent of its firms.

According to Andrew McRae, the FSB’s Scotland policy chairman, the “lamentable payment culture isn’t a new phenomenon, but that doesn’t make it any more acceptable. As we face the possibility of a sustained period of economic turbulence, we can’t see bigger businesses use their smaller customers as a free source of credit. For far too long, government has tolerated big businesses treating their smaller suppliers with disrespect.”

The FSB stated that the average cash value that has been owed to a Scottish firm, as measured by each late payment, exceeds £5,700 (nearly $7,450 USD). The Scottish government in turn has been promoting the Scottish Business Pledge, where more than 590 businesses have committed to prompt payments.

In terms of individual company news in Australia, document automation solutions provider Esker said it has introduced a cloud-based solution tied to cash collections management, which seeks to reduce days sales outstanding (DSO) by automating collection calls and sending payment reminders. The company said that automating such tasks can lead to better staff productivity and speed invoice payments. In Australia, Esker said, as many as four in 10 invoices are paid late, with an average delay of 32 days.

In the U.S., on-demand food company Munchery shut down this year — and amid notifications that operations would immediately cease, many suppliers have been left unpaid. Tens of thousands of dollars are owed to food suppliers, and many of them are small businesses. Some of those smaller businesses have been calling for the company’s venture capitalists and investors to foot the bill for unpaid invoices.

PYMNTS-MonitorEdge-May-2024