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Firms struggle to make payments

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Problems are getting worse for the local companies. Not only slowing demand, but also the worsening payment schedule of their business partners is becoming a serious problem. The biggest problem right now is the shortage of cash. The Chamber of Commerce will therefore try to negotiate a new system of VAT payments with the Finance Ministry this week.

“It’s getting worse. Your chances of getting any money without making an additional invoice request are almost zero,” said Robert Krigar, co-owner of the Czech transport company Jihotrans. “There are companies here obviously threatened with collapse,” said Krigar. He said his company had to include among bad payers some of the partners who at the end of last year had no problems whatsoever.

“The secondary payment insolvency is sharply growing. That’s why we want to ask the Finance Ministry to introduce a different system of VAT payments,” said Petr Kužel, chairman of the Chamber of Commerce. Under the current system, the companies make the VAT payments immediately after issuing an invoice, whereas the Chamber of Commerce wants the payments to be transferred once the invoice has been paid.

“This would be a special system valid only during the time of economic crisis, meaning a few months. The aim of the new system is to avoid increasing problems for the VAT payers caused by their consumers,” said Kužel. According to a recent survey by the Confederation of Industry, the volume of insolvencies grew by 40% in the beginning of the year. At the same time, the volume of claims with expired term of payment grew by some 50%. “Now the numbers must be significantly higher,” said Jaroslav Míl, president of the Confederation of Industry.

The companies themselves tend to avoid speaking about their problems with invoice payments. They fear they could appear on the list of “unreliable” firms which would have devastating consequences for them.

A growing number of firms struggle meeting payment terms

Trustworthiness among all sectors of industry has been seriously affected. Entrepreneurs say the number of companies unable to meet their payment terms is growing rapidly. The central bank data confirm the worsening payment behaviour. Payment insolvency among companies grew by more than one third from June to November. And the year-on-year figures concerning firms delayed more than one month with debt payments doubled.

“A number of companies switched to a simplified payment system because of slowing demand and the resulting shortage of cash. This means that the companies pay for invoices only after you have started dealing with them. It is in most cases not because they would not want to pay but because they want to maintain cash as long as possible,” said financial director of a medium-size computer firm. The biggest problem of medium and small-size businesses is the sharp decline in the volume of free financial resources, which is now even worse due to the worsening payment behaviour and the reluctance of banks. Moreover, the financial offices have tightened the terms for collecting taxes and social insurance payments. While last year the health and social insurance payments were payable according the payment term, now the companies must transfer the money within the first 20 days of the month.

“One year ago you were able to negotiate a postponement of the payments with a leasing company without a problem but this is impossible now,” said Robert Krigar.

Businesses in the industry sector are changing their predictions for the length of the crisis because of the worsening situation. They originally expected the economy to start growing already in 2010.

“The economy in the United State and Europe must start growing first before it will be our turn. Everything will get postponed and the crisis will end in the Czech Republic in 2012,” said Míl. “Considering the situation in Europe, I believe the real crisis will get here in April or May,” said Krigar.

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