Tackling the Late Payment issue

The European Commission page on the late payment directive states:
To protect European businesses, in particular SMEs, against late payment and to improve their competitiveness, Directive 2011/7/EU on combating late payment in commercial transactions was adopted on 16 February 2011 and was due to be integrated into national law by EU countries by 16 March 2013 at the latest. This Directive puts in place strict measures which, when properly implemented by EU countries, will contribute significantly to employment, growth and an improvement in the liquidity of businesses.

The UK implemented a requirement for larger companies to report their payment performance. From April 2017, large companies will be required to publish their payment practices twice a year to make sure that small companies do not get caught out.

Under the new rules, large companies will be required to disclose:

  • payment terms
  • average time taken to pay
  • proportion of invoices paid beyond agreed terms
  • proportion of invoices paid
    • in 30 days or less
    • between 31 to 60 days
    • beyond 60 days
  • any late payment interest owed and paid

In addition, the Prompt Payment Code continues to be used to communicate the importance of the impact of late payment on small businesses. Click here for more information.

So is all of this making a difference? Some say yes, that larger organisations are paying more promptly and that this is cascading down to the smaller businesses.

At Veritas we are not yet seeing any marked change in the SME sector but watch progress with interest.

Using legislation may actually change the behaviour of paying someone late without any good reason, but the problem is that it hasn’t succeeded so far.

Whilst payment within X days of procurement is used in the wording, what is deemed procurement? In the supplier’s mind this is the moment the service or product is delivered to the customer. But in the customer’s mind it is the moment the service or product is received and accepted as satisfactory and in accordance with the contract for the supply. Is it therefore when the product or service is authorised as being OK? We have worked with numerous organisations that have an extensive and complex sales invoice authorisation process that invariably means that payment is not made within a 30 day timescale, regardless of what terms are agreed.

Part of operating a business is cash flow management and there is no doubt that prompt payment needs to start at the largest and most influential businesses so that it cascades down. Maybe the new requirement to ‘name and shame’ will facilitate this. Only time will tell…

In the meantime, adopting credit control best practice is one thing a company can definitely do to help themselves get paid on time.

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