European ‘Late Payments’ Directive is welcome but will have limited impact, says Furley Page

15th May 2013

For every company which has suffered the headache of late payment for goods and services, the implementation of a new ruling from the European Commission will be welcomed.

The European Directive 2011/7/EU on Combating Late Payment in Commercial Transactions is aimed at encouraging prompt payment in business to business contracts. But what impact is it likely to have on UK businesses?

Natasha Biggs, a solicitor with law firm Furley Page, says that while the UK already has a solid statutory regime for dealing with late payments the directive will make it simpler for businesses to pursue debt, limiting payment terms and helping level the playing field between businesses regardless of size.

“This is seen as encouraging trade and ironing out uncertainty in respect of payment. Creditors can pursue debtors for interest, a fixed sum of compensation and reasonable recovery costs if they do not pay for goods and services on time. Businesses are to pay invoices within 60 days and the public authority is to do so within 30 days,” says Natasha, who is a member of the insolvency and debt recovery team based at Furley Page’s offices in Chatham Historic Dockyard.

“These time limits can be varied by agreement, however this is on the proviso that the agreed terms are not unfair to the creditor. Interest can be claimed after the relevant period for payment has expired. In the UK the creditor can claim interest at 8% above the Bank of England reference rate.

“The reference rate is set every six months on 31 December and 30 June each year. An alternative rate can be applied although it will need to be seen as a substantial remedy to supersede the statutory percentage. The compensatory amount for late payment is fixed in reference to the sums that are outstanding and will either be the sum of £40, £70 or £100.”

Natasha explains that creditors can also seek payment of the reasonable costs of recovery from the debtor if the compensation does not cover this.

“As the UK already has a statutory regime to deal with late payments it is unlikely that the implementation of the directive will make significant changes for UK businesses. Firms will still need to weigh up the commercial implications of pursuing debtors too vigorously, especially if they wish the relationship to continue. In practice the directive will do little to level the playing field between different sized businesses.

“A small supplier attempting to change contractual terms to their advantage against a larger buyer may find that the buyer simply moves on to another supplier. Equally a smaller buyer up against a larger supplier may have to agree to a reduction in their current repayments days etc to their disadvantage or risk losing a supplier and any discounts associated buying from a large company.”

Natasha says: “While the directive may help encourage a culture of prompt payment, it is unlikely to make significant changes in current practice.”

For further information about debt recovery, call Natasha Biggs on 01634 828277.

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