Late payment legislation to be brought forward

Late payment legislation designed to help prevent late payment of invoices and unfair payment terms will be introduced a year early, a Government minister has revealed.

During a Commons debate at Whitehall last week, business minister Ed Davey revealed that a consultation into the EU directive will take place this winter, which will then transpose the legislation into UK law in the first half of 2012 - a year earlier than required.

The directive will set standard payment terms at 30 days, and label any terms in excess of 60 days as 'grossly unfair'. It will also entitle businesses to a statutory interest rate of 8 per cent above the European Central Bank rate for late payments.

According to Davey, late payments are affecting businesses of all sizes, he said: "Late payment is not exclusive to any sector or to any style of business. Although I sympathise with those who say that this is big business abusing its power, an awful lot of payment is between small businesses. The majority of contracts that any small business has are with other small businesses. We should not say that it is just a big business problem against small businesses, because the issue is about more than bully-boy tactics. Research shows that of the moneys owed by large businesses, around 40 per cent is overdue compared with 30 per cent for small businesses. The problem therefore affects businesses of all sizes."

The announcement follows figures released by the Federation of Small Businesses (FSB) in July, which found that 73 per cent of businesses had paid late in the last 12 months. Commenting at the time, John Walker, national chairman of the FSB said:

"In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff. We need to see all businesses ensuring that they make payments on time if the private sector is to get on with the job in hand of strengthening the recovery."

The Forum of Private Business is urging all small suppliers who have suffered to come forward and anonymously name and shame offending businesses.

"Late payment destroys companies, yet it is often seen as normal practice by big supermarkets and other companies, which believe it is acceptable to create lines of credit at the expense of their smaller suppliers. We certainly do not," said the Forum's Head of Campaigns, Jane Bennett.