Late payment rules to arrive a year early

The Directive, 2011/7/EU, passed in March this year, with Nation States given until 16 March 2013 to implement the legislation.

 

The legislation will replace a previous EU Directive passed by Strasbourg in 2000 to combat late payments, and features a series of additional provisions, which besides the harmonisation of payment periods of 30 days between public authorities and businesses, includes a statutory interest rate for late payment of 8% above the European Central Bank rate.

 

Businesses will have to pay invoices within 60 days unless an agreement is expressly made with suppliers, and if it is not judged to be “grossly unfair”. The Directive also mandates that businesses will be automatically entitled to a minimum fixed rate of €40 (£35) as compensation.

 

In July, the Federation of Small Businesses (FSB) revealed statistics showing 73% of responding companies had been paid late by some customers in the previous 12 months. John Walker, FSB national chairman, at the time said: "In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff. We need to see all businesses ensuring that they make payments on time if the private sector is to get on with the job in hand of strengthening the recovery.”

 

In a statement to the Telegraph, business minister Ed Davey said the introduction would address some of the concerns of UK small businesses, and added there would be a consultation over the winter when government officials would “transpose the legislation into UK law in the first half of 2012, which is earlier than we are required to do”.

 

The newspaper published a statement by Chuka Umunna, shadow minister for Small Business and Enterprise, who also backed the move by Whitehall. “I welcome the fact the government has agreed to bring forward the implementation of the EU directive of late payment into UK law, which is a step we have been calling for,” he commented.

 

“The new limits which the directive introduces will help to clamp down on unfair payment terms and encourage a change in culture so that paying late is firmly unacceptable."

 

Peter Ewen, MD of Venture Finance and chairman of the International Factors Group, said it is “encouraging to see the government leading the way in alleviating a problem that stunts cashflow and can limit the ability to grow.

 

“SMEs have huge potential to add momentum to the UK economy, but without healthy cashflow they cannot easily invest in growth,” Ewen added. “Two thirds of accountants (69%) believe that it will greatly affect the UK’s wider economic recovery if such problems aren’t addressed. This is why the government’s focus on it is so important.”

 

He encouraged small businesses to take steps to help alleviate the problem, including “agreeing payment terms upfront and running credit checks on potential clients”.