Debt collectors want defaulters to pay price

Making a payment at the post office: Swiss attitudes to paying on time have deteriorated Keystone

Swiss debt collectors say those who default on their payments should bear the resulting costs.

This content was published on January 30, 2008 - 12:02

In 2006 there were 883,112 collection orders filed, amounting to SFr728.1 million ($667 million), according to the Swiss collection association.

Reforms bringing Switzerland closer to the European Union late-payment model were needed to avoid prompt-paying businesses and customers being unfairly punished, politicians and debt collectors said on Tuesday.

Thomas Kast, president of the Swiss collection association, said the Swiss were becoming less good at paying their bills on time, and were now close to the European average. He blamed a change in mentality.

He added that small and medium-sized businesses often had no choice but to shift the "exorbitant" costs of late payment onto prices, so ultimately it was customers who paid on time that would feel the brunt.

At a news conference called by the collection association, parliamentarian and businessman Adrian Amstutz called for a system of damage cover based on the principle that the party responsible is liable for costs.

Amstutz said it was "particularly shocking" that in Switzerland public authorities were guilty of some of the longest delays in payment.

Companies did not dare complain out of fear that they would lose future orders, he said, adding that increasing numbers of small and medium-sized businesses were falling into the liquidity trap, which can threaten their existence.

Liquidity is the ability of an enterprise to meet its payment obligations on time. When expected returns from investments in securities or equipment are low, investment falls, a recession begins, and cash holdings in banks rise. In a vicious circle, people and businesses then continue to hold cash because they expect spending and investment to be low.

European model

Amstutz said he wanted to see the interest on arrears being raised to a cost-covering level, as in the European Union, through a revision of the law on obligations.

The law on obligations deals with situations where a person has incurred a personal liability for which he or she is answerable at law.

Switzerland is not in the EU, but in August 2002 an EU directive came into force designed to standardise the right to claim late payment interest on overdue commercial transactions throughout member states.

In a nutshell, the directive provides for a 30-day period in which bills must be paid, after which penalty interest of seven percentage points above the European Central Bank's main refinancing rate can be charged – although countries not in the euro zone can set their own rates above their own national base rate.

Amstutz suggested a penalty interest of eight percentage points above the Swiss National Bank's three-month target Libor rate, the most important interest rate for short-term Swiss franc investments.

He pointed out this would give an interest on arrears of 10.68 per cent, while the legal interest on arrears was currently five per cent.

He also wants to see the introduction of federal directives forcing public authorities to settle their debts within 30 days.

Stefan Zickgraf from the Federation of European National Collection Associations said the EU directive on late payment in commercial transactions has proved to be effective.

swissinfo with agencies

Key facts

According to the European Union, one out of four insolvencies is due to late payment. This leads to the loss of 450,000 jobs each year, adding to the high unemployment level in Europe.

In addition, outstanding debts worth €23.6 billion (SFr38 billion) are written off every year through insolvencies caused by late payment.

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