UK government set to introduce legislation in 2012

A new EU directive, which sets 30 days as the standard payment invoice time for private businesses, is due to become UK law in 2012.

The legislation sets 30 days as the acceptable payment time and recognises this can be extended to 60 days if a grace period is pre-agreed by suppliers.

Businesses which continue to leave invoices unpaid after this time may face legal action and the delay may be labelled ‘grossly unfair’.

Chuka Umunna, shadow minister for Small Business and Enterprise, backed the move. “I welcome the fact the government has agreed to bring forward the implementation of the EU directive of late payment into UK law, which is a step we have been calling for,” he said.

“The limits which the directive introduces will help to clamp down on unfair payment terms and encourage a change in culture so that paying late is firmly unacceptable."

Ed Davey, the Business minister, said there would be a consultation in the winter and then officials would “transpose the legislation into UK law in the first half of 2012, which is earlier than we are required to do”.

Late payments are cited as the most serious problem for UK businesses suffering from cashflow problems, according to Lloyds TSB’s recent biannual ‘Business in Britain’ survey.

Of the 32 per cent of firms nationally which revealed they were experiencing cashflow problems, the majority (63 per cent) cited late payments as the main cause.

It is essential businesses manage invoices carefully to ensure late payments are kept to a minimum and cashflow remains flexible to ensure they are in a strong position for future growth.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, said: “This legislation is a step in the right direction for businesses, especially smaller firms, which continue to be stung by late payments.

“Large corporates are often slower to pay then smaller businesses, stretching payment times up to 90 days. This legislation should further assist SMEs and give them additional clout when chasing unpaid invoices.

“Credit insurance, such as our debtor insurance policy, should be utilised as a matter of course for businesses to safeguard cashflow which could be damaged as a result of non-payments or customer insolvency.”