Update on Directive 2011/7/EU – Combating Late Payment in Commercial Transactions

The Directive

The Directive has been designed ‘to combat the culture of late payments in commercial transactions..’, however, it also indicates that companies should undertake their own checks to ensure customers are in a position to make payment and furthermore, protect themselves by preparing accurate and timely invoices.

The Consultation Process

The Department for Business, innovation and Skills (BIS) prepared and distributed a consultation which asked for views on four main areas. This resulted in 80 responses from individuals, businesses and their representatives which BIS advise was ‘satisfactory’ number for a consultation of this type.

Outcome

The Government response to the consultation has been published by BIS with the results as follows:

  • Public sector payment terms will remain at the current 30 day payment period.
  • The directive will be implemented by amending the existing Late Payment of Commercial Debts (Interest) Act 1998 rather than repealing and replacing it.
  • The three tiered approach to compensation on debts will remain. (£40, £70 or £100 can be claimed dependant on the size of the debt).
  • Any contract concluded before 16 March 2013 will be not be subject to the Directive.

Additional Information

Further questions were posed on the consultation to assess the impact of late payment and in particular where this may impact on the survival of a business. It appears from the responses received indicate that reduced cash flow leads to a lack of investment and in turn, results in increased borrowing.

Credit agencies reported that many small businesses were not aware of the Late Payment Interest Act and therefore were not claiming this. Once they became aware of the provisions of the act they started to use it.

Views from small businesses indicated that they are spending time chasing debts which could lead to a loss of profit as this is time that could be spent generating business.

Time for Change!

The changes will come into effect on 16 March 2013, but please note they will only affect contracts concluded after this date.

Written by Christine Power – Chartered Legal Executive

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