It’s now over a year since the EU Late Payment Regulations came into force (March 16th 2013, to be precise) yet many businesses and sole traders are still not fully aware of the statutory protection they convey – and fewer still are enforcing the rules when they fall victim to late payments.
Here’s your at-a-glance guide to what the regulations mean, and what they might be able to do to compensate you when a debtor fails to pay on time.
Full Name: Directive 2011/7/EU on Combating Late Payment in Commercial Transactions
AKA: EU Late Payment Directive/Regulations
Came into effect: March 16th 2013
To reduce the prevalence of overdue payments in B2B transactions throughout Europe.
To enshrine in law the compensation available to suppliers when they are paid late.
To simplify existing compensation laws and make them consistent across the EU.
In the UK:
We retained our existing three-tiered system of fixed penalties for overdue payments, so the amounts chargeable in pounds sterling are not linked to the euro amounts chargeable elsewhere in the EU.
Standard Payment Terms:
30 days on most B2B and public authority contracts – this is negotiable by mutual consent, but must not be grossly unfair to the supplier.
£40 on debts less than £1,000
£70 on larger debts up to £10,000
£100 on debts over £10,000
The directive allows for reasonable debt recovery fees to be collected from the debtor – these must allow for the fixed penalty being used towards such costs first.
For example, on a debt below £1,000 where debt recovery fees of £150 were incurred, the £40 fixed penalty must be put towards those fees first, allowing a further £110 to be claimed from the debtor.
8% above the Bank of England reference rate, which in turn is set twice a year using the BoE base rate.
This may be charged from the date the goods or services are delivered, the date they are accepted (often the same day) or the date the invoice goes overdue, whichever is the latest.
There is no mandatory requirement to enforce these rules – which means you are not legally obliged to charge interest or enforce penalty fees on overdue payments from business customers.
However, they have been put in place to protect business suppliers against late payment, so you should not feel awkward or afraid to bring the EU Late Payments Directive into effect if you feel you have been mistreated.
At the very least, the threat of penalty fees is often enough to encourage a customer to pay you the original amount they owed – accelerating settlement substantially, even if you do not then chase for the fees and interest.