EU Late Payment Rules to be Fast Tracked

On the 20th of October last year, the European Union voted in favour of a new Directive intended to combat late payment in commercial transactions within the Union. This Directive will replace the existing Directive (2000/35/EC).

The Government recently stated its intention of "fast tracking" this Directive into UK law a year early - a reliable and welcome indication that the coalition is taking the persistent (and all too prevalent) problem of late payment and its impact on SMEs and the economy as a whole very seriously. The question remains, though, whether the new legislation will succeed in ensuring that suppliers are paid on time for the goods and services they provide - which is exactly what the existing Directive (2000/35/EC) was intended - and has failed - to achieve.

Recent research among UK accountants revealed that late payment remains an issue for 63% of accountants' clients. Very significantly, almost 46% of those clients had seen large customers forcibly extend payment terms.

Philip King, the CEO of the Institute of Credit Management, has emphasised in the past that it is important not to over-simplify the late payment issue as one of big business being bad, and smaller businesses being 'the downtrodden masses' because late payment is a problem across the board, and I thoroughly agree with him.

I cannot agree, however, that any amount of 'better professional credit management advice' is going to address the most worrying aspect of the late payment problem - the climate of fear that effectively undermines any attempt to solve the problem by whatever means.

The new legislation allows suppliers to complain of treatment that is effectively illegal, but (like the original legislation) provides no protection for whistle-blowers. Commercially savvy suppliers will certainly continue to suffer in silence rather than pursue a course that would result in their being 'delisted' by large and powerful customers.

Large companies can afford to dictate their own terms; some of them do, and attempts by small suppliers to resist or override those terms tends to result in those suppliers being 'delisted'. Commercially savvy suppliers will therefore continue to suffer in silence and accept any terms that are imposed upon them rather than face the risk of being 'delisted'.

The late payment problem has been around for a very long time. This is not the first attempt to legislate it out of existence, and I fear it won't be the last. What's really required is a shift in the moral climate. Could be a long time coming.