First of all, what is the EU Late Payments Directive? Well, in principle it harmonises the regulations surrounding overdue payments in EU member states.
In practice, the UK’s rules remain slightly different from those of countries in the eurozone, as we already had a clear system of recompense for those inconvenienced by late payment.
The legislation now allows for you to charge statutory interest at a rate set twice a year from the Bank of England base rate – this was already allowed in the UK.
For the first time, the legislation also clearly allows you to claim back any debt recovery costs from the debtor – this is new, and should mean you receive just as much in total by calling in the debt collectors as you invoiced for in the first place, plus interest.
You cannot ‘profit’ from the payment being late, so the three-tiered flat fee must be used towards your recovery costs, with any remainder claimed back from the debtor, rather than the flat fee being added on top of the total.
But it still makes it clearly a creditor’s world for small businesses, who might previously have let late payments slide due to fears about the cost of taking action.