The impact of late paying debtors throughout the UK and Europe is seriously threatening the survival of many small businesses and, as a result, the European economy is suffering too. Annual research carried out in Europe for the European Payment Index Report discovered that public bodies are amongst the worst payers throughout the continent. As a result, the EU introduced the Late Payment Directive in 2011 and a new 30 max campaign has been launched to push for payment of bills in 30 days or less.

How does this affect you and what can you take from it?

Whether you deal with the public sector or not, every business should be pushing for prompter payment terms with all of their suppliers. The Late Payment Directive provides a good structure for suppliers to introduce stricter terms into their company wide payment policy. Here are some of the key points you can bring into your own debt recovery processes:

  • Customers must pay for goods and services procured within 30 days or, only in very exceptional circumstances, 60 days.
  • The statutory interest rate for late payment will be increased to at least 8 percentage points above the European Central Bank's reference. No supplier is allowed to fix a lower interest rate for late payment.
  • The new measures are obligatory for public authorities. They must lead by example and show their reliability and efficiency by honouring their contracts and paying on time.
  • Businesses will automatically be entitled to claim interest for late payment and will also be able to obtain a minimum fixed amount of £40 as compensation for recovery costs. They can also claim compensation for all remaining reasonable recovery costs.

If you're worried about setting strict payment terms in fear of losing your customers, it's worth bearing in mind that late payers can do much more damage to your business than a potential lost customer can at the onset.

Intrum Justitia, the credit management group for the European Payment Index (EPI), conducts extensive research with 10,000 businesses annually throughout Europe to identify, among other things, the effects of late payments on business cash flow. The feedback they received revealed the following results:

  • About 55% of businesses expect a loss of income due to late payments
  • About 63% businesses expect a liquidity squeeze due to late payments
  • About 50% of businesses expect reduced growth perspectives due to late payments

If you would like to know more about your rights as supplier, please contact the nationwide debt collection experts at P&J for independent advice.