Gabhaim buíochas leis an Teachta Sargent as ucht an ábhair thábhactach seo a chur faoi bhráid na Dála agus deis a thabhairt dom freagra a thabhairt air. Gabhaim buíochas leis freisin as ucht an sár obair a rinne sé nuair a bhí sé sa Roinn thar ceann na daoine seo. I thank Deputy Sargent for raising this important issue on the Adjournment. Businesses, including farmers, are finding it more difficult to access funding, whether in the form of credit from the banking sector or payments from business customers. Payment terms in commercial transactions are determined by the parties concerned and responsibility for the collection of those payments and for general credit control rests with the selling enterprise. The State does not impose specific payment periods for commercial transactions and thus has no role in regard to enforcing payments or in making public examples.
The Deputy will be aware that the issue of late payments in commercial transactions is addressed by the European Communities (Late Payment in Commercial Transactions) Regulations 2002. These regulations relate to commercial transactions in all sectors of the economy, including the agricultural and horticultural sectors. In accordance with these regulations, it is an implied term of every commercial transaction that where a purchaser does not pay for goods or services by the relevant payment date, the supplier shall be entitled to interest on the amount outstanding. Interest shall apply until such time as payment is made by the purchaser. The current interest rate applicable is 8% per annum or 0.022% per day. This rate is set at 1 January and 1 July each year at a rate of seven percentage points above the European Central Bank interest rate on its most recent main re-financing operation. In the absence of an agreed payment date between the parties, late payment interest generally falls due after 30 days from receipt of an invoice.
The 2002 regulations also provide for compensation for debt recovery costs. Greater use of these provisions would, I believe, assist in achieving a better culture of earlier payments. In addition, under the regulations, the use of terms that are grossly unfair may be unenforceable and such terms may be challenged in court on the basis of criteria specified in the regulations. Organisations representing small and medium-sized enterprises, including those in the farming and horticultural sectors, may challenge any terms that they believe breach the regulations in this regard. It is open to any such organisation to pursue this option. However, I understand that this provision of the regulations has not been availed of to date.
To assist businesses and to set a good example to other purchasers, the Government has introduced formal arrangements to reduce from 30 to 15 calendar days the payment period by central government Departments to their business suppliers. This commitment has effect on all valid invoices received on and from 15 June 2009 and is helping cash flow difficulties for enterprises. As part of the arrangement, central government Departments are obliged to report to the Tánaiste and the Department of Enterprise, Trade and Employment on a quarterly basis outlining their performance in meeting their requirements. Returns have been received for the third and fourth quarters of 2009. These returns were published by the Tánaiste on 30 December 2009 and 5 March 2010 and also advised to this House in a response to a parliamentary question on Tuesday this week. Both sets of returns show that the majority of payments were made within 15 days. Central government Departments are generally paying 97.9% of their invoices by value within 15 days.
Deputy Sargent also referred to working capital for hard pressed business people. The central objective for Government is the provision of normal credit on fair commercial terms in our economy to all viable business, large, medium and small. It is critical that our banking system is again fully fit for purpose whether in providing working capital, new loans or other credit facilities to businesses. The relationship between banks and businesses needs to be fully restored, built on trust and economic and business realism. There is no doubt but that banks are making significant credit available to businesses, albeit in the context of a decline in demand for credit against a background of slower economic activity. The independent reviews of bank lending carried out by Mazars show clearly the significant lending volumes going to businesses. However, we are all well aware of the demands from businesses for greater access to bank credit, in particular for working capital needs.
The Government has taken a range of actions to sustain the banks to facilitate the flow of credit to the wider economy. The bank guarantee and recapitalisation schemes, the nationalisation of Anglo Irish Bank and the massive effort we have put into the entire NAMA process are all for the single purpose of getting our banking sector supporting the wider economy. The NAMA Act was further strengthened by the Government amendment providing the Minister for Finance with a power to issue guidelines to the participating institutions in the NAMA process on lending practices and procedures to improve the flow of credit to small and medium-sized enterprises and, if necessary, to other sectors, including the agriculture and horticulture sectors.
NAMA is absolutely necessary to clean up the balance sheets of the banks and to create a functioning banking system in Ireland. It will not solve everything nor is it all we need to do. NAMA is making banks come forward and declare the scale of their losses up front and resulting capitalisation plans will have to involve State investment as well. As the Taoiseach has already announced, the Government's plans to restructure the banking sector are imminent and will be announced over the coming weeks. Further recapitalisation of the banks will feature in these plans.
The Minister for Finance will shortly issue guidelines to ensure that businesses will have recourse to an independent external review of decisions of credit refusal by the NAMA participating banks. It is hoped that banks not participating in NAMA or covered by the Government guarantee will also decide to join the system. The aim is to have a simple, effective review process, run by people with experience and credibility. The banks must comply with the recommendations of the review process or explain why they will not do so. In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help to determine what further action might be necessary to secure the flow of credit. The Minister for Finance intends to publish the analysis of the review process so that the performance of the banks participating in NAMA will be clear to all.
Deputy Sargent and Members of the House will be aware that the renewed programme for Government contains a specific commitment to implement a code of practice for doing business in the grocery goods sector to develop a fair trading relationship between retailers and their suppliers and to review progress of the code and, if necessary, to put in place a mandatory code. It is the Tánaiste's intention to give effect to this commitment by including a specific provision in the legislation on the merger of the National Consumer Agency and Competition Authority which will allow for the introduction of statutory codes of practice in areas such as the grocery goods sector. In the interim, the Tánaiste intends in the coming weeks to explore with all the relevant stakeholders the possibilities of agreeing a voluntary code which would respect the interests of all parties. A voluntary code offers stakeholders the opportunity to develop a code which is appropriate to the dynamics of the Irish grocery goods sector and which, in turn, could also form the basis of any subsequent statutory code. The concerns of the horticultural sector can feed into this process.
The Government will continue to take the necessary actions to support businesses and to restore the banking sector so as to position Ireland to be best prepared to benefit from an economic upturn.
