New EU late payment rules for 2012
7 November 2011
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The Government has announced that it will introduce a European Directive which makes a 30-day standard invoice payment term compulsory for all businesses from 2012 – a year earlier than expected. Read on to find out what it will mean for your business and how the Forum is fighting late payment.
Under the new Late Payments Directive, businesses will be able to set 60-day terms by prior agreement, but payment terms of longer than 60 days should become a thing of the past, judged  "grossly unfair" by the courts.
 
The EU-wide deadline for implementing the Directive is 2013, but the Government has decided to fast-track the implementation to "address some of the concerns expressed by small businesses owners over payment terms and late payment". A date for implementation has yet to be set, but it is expected to be in the first half of 2012.
 
The original Late Payments Directive 2002 has already had an impact on UK law. All business that grant credit are legally entitled under the Directive to charge late paying customers statutory interest of 8% plus the Bank of England base rate (0.5% at time of publication). This is currently higher than the standard set by Europe.
  
The main points that you need to be aware of in the Directive are:
  • Public authorities will have to pay suppliers within 30 days of their supplier invoicing them

  • The Directive introduces a cap on the maximum contractual payment period between businesses at 60 days. Businesses will have to pay suppliers within 60 days of invoicing, unless other terms are expressly agreed that are not "grossly unfair".

  • If no contractual period is set, invoices must be paid in 30 days

  • Businesses will be automatically entitled to claim interest on late payment and claim a €40 (approx. £35) minimum amount for recovery costs

  • The statutory interest rate will rise to at least 8%, bringing it into line with the current UK standard.
The European Commission believes that, once introduced by all EU member states, the new rules could mean an extra £150 billion being made available to businesses across Europe, helping to relieve cash flow problems.
While the Forum welcomes measures to reduce late payment, we are calling on the UK's public sector to retain the target set in 2008 of paying all small business suppliers within 10 days, well below the standard set by Europe.
 
The cap on the maximum payment period between businesses should help small businesses, who often find it difficult to properly negotiate terms with larger customers. They should also help small businesses that export to other EU countries to improve their cash flow by reducing their exposure to poor payment.
 

How the Forum can help

We have campaigned extensively against the practice of late payment and were instrumental in lobbying for Late Payment of Commercial Debts (Interest) Act and the introduction of the Prompt Payment Code.
 
We can help business owners to minimise the damage caused by late payment via our Finance Director Business solution, which provides members with debt recovery and credit reporting services, plus an online Credit Control Guide. Plus, we also give business owners a voice to speak out against late payment.
 
We understand that speaking out on this subject can be difficult for smaller suppliers who do not wish to lose business. If you would like to have your say, but do not wish us to use your name, we treat all communications sent to latepayment@fpb.org anonymously.


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