Finance Minister Yair Lapid is setting out to fix one of the biggest problems faced by small businesses in Israel – the long delay that most face before getting paid. To rectify the situation, Lapid is making an example of the government, which, he promised Wednesday, would from now on make sure to pay bills within 30 days of their being received.
“My wife's parents have a small business, and over the last 25 years I have learned very well the problems small business people face,” Lapid told a conference of small business owners Wednesday. “I learned that worry – about whether or not, and when, they would get paid – is a central feature in the life of a business owner.”
In many sectors, it is customary for customers to pay their bills only 60 or even 90 days after receiving them – a situation which often wreaks havoc on the finances of small businesses. Most businesses are required to report their sales to tax officials and pay VAT (value-added tax) once every 30 or 60 days. The reporting includes sales that billed within that period – even if the payment has not been forthcoming. '
The result is that businesses are required to pay 18% of their sales income up front, even before actually getting the money in hand – even if the delay is substantial, or even if they never get paid at all. For a small business that often survives hand to mouth, those expenses could mean the difference between commercial life or death.
There is little Lapid can do about that; previous attempts to change the law on how VAT has been collected have fallen flat, as tax officials say that they need the money to pay for government expenses, and in a free economy there is no way to legally force someone to pay their debts. But at least, Lapid said, the government could set its own house in order and make sure it was doing right by its suppliers – with the hope that this payment ethic would “trickle down” to the rest of the economy.
“According to a poll I took, the government paid its bills within 30 days 67% of the time between January 2012 and June 2013,” said Lapid. While that record wasn't bad, he realized that many of those who were getting “stiffed” were small businesses – and that was unacceptable. “Small and medium businesses contribute 55% of Israel's annual gross domestic product, and constitute 99% of the businesses in Israel,” said Lapid. “They are the true engines of the economy, and it is our responsibility to help them,” he added.