Debt Recovery Blog – Late payment legislation to be brought forward

Late payment legislation designed to help prevent late payment of invoices and unfair payment terms will be introduced a year early, a Government minister has revealed.

During a House of Commons debate at Whitehall last week, the business minister Ed Davey revealed that a consultation into the EU directive will take place this winter, which it is hoped, will then lead to new legislation into UK law in the first half of 2012 – a year earlier than required.

The directive will set standard payment terms at 30 days, and label any terms in excess of 60 days as ‘grossly unfair’. It will also entitle businesses to a statutory interest rate of 8% above the European Central Bank rate for late payments.

According to Davey, late payments are affecting businesses of all sizes, he said: “Late payment is not exclusive to any sector or to any style of business. Although I sympathise with those who say that this is big business abusing its power, an awful lot of payment is between small businesses. The majority of contracts that any small business has are with other small businesses. We should not say that it is just a big business problem against small businesses, because the issue is about more than bully-boy tactics. Research shows that of the monies owed by large businesses, around 40% is overdue compared with 30% for small businesses. The problem therefore affects businesses of all sizes.”

The announcement follows figures released by the Federation of Small Businesses (FSB) in July, which found that 73% of businesses had paid late in the last 12 months. It is common knowledge that late payments destroy companies, yet worryingly it is often seen as normal practice with little chance of avoidance and as such, many are swept along on the tide of late payments, currently to the tune of £24bn owed to small business.

Previous governments have failed to decisively act on the issue and many will reserve judgement on the measures until they are implemented, and whether they will be watered down in the process, and/or what barriers will still exist for those firms held at the mercy of late payments, For example, how will the statutory interest rate for late payments be handled? Will debt recovery proceedings need to be initiated to recover the interest OR will payment of it be governed by law, and the onus shifted from the owed company to the late payer in so much as large companies cannot then bully the smaller suppliers into not getting paid the interest?

It would take a brave small supplier to issue debt recovery proceedings against a large corporate customer for the late payment interest (which is to become a legal right) so it will be interesting to see if government goes as far to say that the payment becomes automatic, and non-waiverable by either party, OR whether as with the present system, the entitlement is there, but that you have to take recovery proceedings to get.

If you wish to engage Liverpool Debt Recovery specialist, CCDR to help protect and shield your business from late payments or your debtors going into liquidation, call us today and we can assist you in being proactive to reduce future bad debts through services such as our Outsourced Credit Control, or for those where the debtor isn’t paying, we have a range of services such as Debtor Tracing, Debt Mediation or Debt Recovery depending on what stage your late payment problems are affecting your business.

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