Good news and bad news as EU imposes 30-day payment terms

The new EU ruling should help small firms - except for those dealing with the UK public sector, where it could actually make things worse.

by Emma Haslett
Last Updated: 17 Sep 2010
For most businesses, late payments  are a fact of life – so it should come as a relief to hear that the European  Union is planning to impose a standard 30-day late payment deadline on all  businesses. There's only one problem: the UK public sector already has a  self-imposed 10-day deadline, which means some providers could end up waiting  longer for their money than they do now. The Forum of Private Business has  already called for the UK Government to retain its shorter terms to protect  smaller public sector suppliers - although With spending cuts imminent, that  may be the least of their worries...
 
The new ruling will mean  that anyone who overshoots the 30-day limit will be slapped with a €40 (£27)  compensation fee, as well as an 8% surcharge on the cash they still owe. Since  businesses are currently owed something in the region of £24bn in late  payments, that's certainly positive – particularly for those who are used to  dealing with large retailers, some of whom are known to take as long as 90  days to cough up. Then again, it cuts both ways: for small firms who have, for  one reason or another, been able to agree longer payment terms with their  suppliers, cashflow could get tighter when the new legislation comes into  force.  
 
Still, for those businesses working with public  sector bodies, it’s going to come as a bit of a blow if David Cameron scraps  the current payment target to comply with EU rules - although there's been no  indication yet that he's planning to. Any other cash-strapped supplier of that  size would be sorely tempted to extend their deadline, to free up a bit of  short-term cash - but unlike businesses, the Government doesn't really have to  worry about running out of the readies (since it can always borrow or print  more).
 
That said, surveys by the FPB have shown that the 10-day  target, instigated by Gordon Brown in 2008 as part of a package to help  struggling businesses, hasn’t been a roaring success: of all invoices to  English councils, just 44% have been paid within the allotted timeframe, and  less than a third of those to the NHS. So perhaps reverting to 30 days  wouldn't make much difference,in practice.
 
What's more, given the  extent of the spending cuts due in October, any business that manages to hang  on to a public sector contract will probably just be thanking their lucky stars that they’ve got one at all – never mind what the payment terms  are.

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