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UK consults on EU late payments laws

New laws targeting late payments to businesses will create a "level playing field" for UK suppliers trading with other businesses and public authorities across the European Union, the Government has announced.20 Sep 2012

It is consulting (30-page / 191KB PDF) on how best to implement new EU late payment laws, due to be transposed into national legislation by March next year.

Business Minister Michael Fallon said that the UK was already seen as an "exemplar" across Europe for its late payment laws. Among the measures being consulted on are whether the existing three-tiered approach to compensation for late payments should be retained, or replaced with the minimum charge set out in the European Directive (10-page / 783KB PDF)

"The UK already has some of the strongest late payment laws in Europe which are now being copied across Europe," Fallon said. "This will give a real boost to UK businesses by providing them with the confidence and certainty they need to work with overseas suppliers."

The Directive requires public authorities to pay their suppliers within 30 calendar days of receipt of an undisputed invoice, matching the UK Government's standard practice. Payment terms for business to business payments as fixed in the contract cannot exceed 60 days unless otherwise expressly agreed, provided that the terms are not "grossly unfair".

Minimum compensation for late payment is set at €40 in the Directive, as opposed to current UK legislation which sets three levels of compensation payment according to the value of the payment due. Suppliers will not be prevented from seeking to claim additional recovery costs if they choose to.

As part of the consultation, the Government is seeking views on whether public sector payment terms should be extended beyond the existing 30 calendar days to up to 60 days where the public authority is carrying out "economic activities of an industrial or commercial nature" by offering goods and services on the market. It may also change the statutory terms for public sector contracts involving healthcare.

The current default UK position is that, where no terms are agreed, payment should be made within 30 days.

Commercial law expert Ruth Andrew of Pinsent Masons, the law firm behind, said that the consultation was a "positive sign" that the Government was committed to improving the position of smaller and medium sized companies facing a challenging economic climate.

"The implementation of the EU Directive can only provide a benefit to those in the supply chain which require, and rely upon, prompt payment but it will be interesting to see how effective any legislative changes will be in practice - as with all things, its efficacy will depend on its 'teeth' and the willingness of all parties to embrace the changes, particularly those within the supply chain who may have greater commercial strength and bargaining power," she said.

She warned that businesses needed to take practical steps to ensure that they were paid on time, rather than merely relying on legislation.

"While it will provide a very useful tool for businesses to ensure prompt payment, it will need to be supported by other practical measures such as good credit control and financial diligence - creating a culture and expectation of prompt payment within the organisation."