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Debt recovery update for businesses: New law targets late payers.

The rules on late payments are due to be tightened a little from 29th March, when an EU Directive is brought into force in Scotland. The Late Payments Directive is designed to help businesses, especially small and medium sized enterprises (SMEs), recover their debts.

Late payment rules in the UK are, however, already among the strongest in Europe, so the impact of the new rules is likely to be limited.

SMEs and late payment

According to the European Commission, dozens of SMEs go bankrupt each day in Europe, simply because their invoices have not been paid on time. This results in the loss of jobs and business opportunities and, ultimately, slows the return to economic growth.

These concerns are backed up by research from Bacs, published in September last year.  The industry body found that across the UK, the average amount owed to SMEs is £36,000 – with 35% of SMEs reporting that late payment debts of up to just £20,000 would be enough to put them out of business.

Six out of ten UK SMEs (59%) experience late payments, said Bacs, with the average waiting period being 43.4 days beyond payment terms. Northern businesses are apparently waiting even longer, with an average delay of 46.8 days before bills are settled.

The Late Payments Directive

The EU decided to tackle the problem of late payments by updating its rules. The revised Late Payments Directive, which was due to come into force in all Member States on 16th March 2013, covers all commercial transactions in Europe, whether they involve public authorities or businesses.

It obliges public authorities to pay for goods and services within 30 calendar days or, in very exceptional circumstances, within 60 days. Businesses are obliged to pay their invoices within 60 calendar days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.

Implementation in the UK

The updated rules are now in force in England and Wales, while the Scottish Government’s version, which copies the English and Welsh regulation, will come into force next week – on 29th March.

It will only cover contracts that are entered into after that date.

The new rules

For Scottish business creditors reading this blog, the new rules mean that, generally, after 29th March:

  • If you enter into a commercial contract with another business, the payment period cannot be longer than 60 days unless an extension is specifically agreed in the contract and is not grossly unfair to you.
  • If you enter into a commercial contract with a public authority, such as a council, the payment period cannot be longer than 30 days. This differs slightly from the Directive, which allows for an extension to 60 days in exceptional circumstances.
  • You will still be able to charge statutory interest of 8% above the Bank of England base rate on overdue sums.
  • You will be able to claim a little more compensation if you have to take debt recovery action. At the moment you are allowed to claim a fixed charge of £40 (on debts under £1,000), £70 (on debts under £10,000) and £100 (on debts higher than that), but the new rules will allow you to claim an additional sum to cover your reasonable costs if they come to more than the fixed charges.

Contact our Debt Recovery Experts in Scotland

To find out how we can help you recover the debt owed to you on a no win no fee basis, please click here or call us today on 0141 433 2626 and let us help you.