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Government fast tracks EU late payment rules

Government fast tracks EU late payment rules

The news: 

Private businesses face new late payment legislation next year that could mean terms in excess of 60 days could be struck down in the courts as "grossly unfair", Ed Davey, the business minister has said. 

The Coalition plans to sidestep David Cameron’s pledge to implement European Union legislation only when required to do so and fast track the revised directive on late payment rules into law in 2012 rather than 2013 EU-wide deadline. 

The regulations sets 30 days a standard terms for public and private entities to pay invoices. This can be extended to 60 days when suppliers have specifically agreed to give customers a grace period to review and acknowledge receipt of goods. 

Comment:

Peter Ewen, Managing Director of Venture Finance and Chairman of the International Factors Group.

The news that the coalition plans to fast track the EU directive into UK law a year early, is further recognition of what is a persistent and growing issue from those in power. The coalition has made a lot of noise on finance but it is encouraging to see the government leading the way in alleviating a problem that stunts cashflow and can limit the ability to grow.

Our recent research among UK accountants found that late payment remains an issue for two thirds (63%) of accountants’ clients, while almost half (46%) have seen large customers extend payment terms forcibly. Statistics from our upcoming Cashflow Barometer also show that overall average payment times have fallen by just one day from 2007 to date, from 61 to 60. 

SMEs have huge potential to add momentum to the UK economy, but without healthy cashflow they cannot easily invest in growth.Two thirds of accountants (69%) believe that it will greatly affect the UK’s wider economic recovery if such problems aren’t addressed. This is why the government’s focus on it is so important.

It is clear that there are also steps SMEs can take to alleviate this problem themselves such as agreeing payment terms upfront and running credit checks on potential clients. When this is unsuccessful, the way that the legislation is implemented and enforced will be crucial to its success in actually cutting late payment. 

However, the government’s renewed focus on the problem is another step in the right direction. Bringing down late payment across the board will increase the availability of working capital for UK businesses and this would be a great thing for them and the economy as a whole.

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