The so-called 'Late Payment Directive', officially named Directive 2011/7/EU on Combating Late Payment in Commercial Transactions, is due to come into effect in less than a month's time, on March 16th 2013.
With just 24 days to go until that time, the Department for Business, Innovation and Skills has revealed the results of its recent consultation on the Directive, along with the finalised set of regulations that will be introduced in March.
The regulations, like the consultation, focus on four main points:
- Should payments in the UK public sector be subject to a 60-day deadline?
- Should the new legislation amend or replace old laws?
- Should the current three-tiered system of compensation be replaced by a €40 flat fee?
- Should contracts concluded before the introduction of the new regulations be excluded from it?
The Public Sector
In some areas of the public sector - healthcare in particular - the government had proposed to extend existing standard payment terms from 30 days to 60 days.
Over three quarters (77%) of respondents to the consultation objected to this, and only 1% were in favour (the remaining 22% did not respond to this particular question).
BIS noted that it is standard central government practice to settle uncontested invoices within five days anyway, making a 60-day period irrelevant; it added that the current 30-day deadline will be retained.
Amend or Replace?
Like any new legislation, the question with Directive 2011/7/EU is whether it should entirely replace old laws, or be incorporated into them as an amendment.
In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 has, since its introduction, governed the amounts of interest that can be charged on overdue amounts when enforcement action is undertaken.
Only 4% of respondents wanted this to be repealed; 37% were in favour of an amendment, while the remainder either did not respond, or were unsure.
Among those in favour of amendments, the reasons given included the recognition of the existing name, and the weight the existing legislation carries - as well as the argument that the new rules represent a relatively minor adjustment of the existing law.
BIS confirms that the existing Act will be amended, rather than replaced, through the appropriate statutory instruments in England, Wales, Northern Ireland and Scotland.
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One Fee to Charge Them All?
The proposed new legislation allows for a flat fee of €40 to be charged on overdue invoices; existing UK laws allow for £40, £70 and £100 on debts of up to £1,000, up to £10,000, and above £10,000 respectively.
More than a third (37%) of those consulted wanted to retain the current system, where the minimum recompense is higher than the euro equivalent; 19% wanted a shift to €40 as the minimum sum, but with the option of reclaiming additional costs too.
In practice, the government states: "We will retain the current three-tier charge ... plus any additional reasonable costs," indicating a best-of-both solution that should allow sensible fees to be added to the amount claimed.
Finally, a large majority (63%) of those consulted were in favour of excluding contracts concluded before March 16th 2013 from the terms of the new legislation; only 1% were specifically against doing so.
The government agrees that applying the new rules retrospectively could prove costly and troublesome, and BIS confirms that the new provisions will not be applied to concluded contracts.
Safe Collections' View
We have been tracking this new legislation from the proposal stage, through consultation, and now into the final days before its imminent introduction into law.
It is good to see the balance that has been given to retaining the protections of the existing legislation in this area, along with the name of the 1998 Act, which will bring much-needed consistency to the transition process.
However, there are also important new protections introduced from March 16th, and we will continue to watch closely to see that these are applied in practice to improve creditor protection still further, particularly in the case of bad debts that require enforcement action.
Our Managing Director Sid Home adds this comment:
"As a company that works with small businesses every day, we are extremely pleased to hear of the government's plans. Late payment kills otherwise profitable businesses every day and we applaud the government for taking a sensible approach to this subject.
"Of particular interest is the statement allowing for the addition of reasonable costs, as it is our hope clear and unequivocal legislation will mean creditors no longer have to bear the financial burden that recovering unpaid invoices can entail.
"Habitual late-payers and bad debtors will soon find that, not only will they be paying fixed statutory collection costs, but also our fees for recovery as well.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.
Image "Where in the world late payment reminder" by flickr user wssst licensed under CC By 2.0