New rules for businesses to get paid on time

With the European Directive on late payments coming into effect in less than three months, the Forum of Private Business is advising small businesses to revise their terms of trade now to reap the benefits.

From 7 August British businesses of all sizes are able to charge interest of 8% above the base rate on debts paid more than 30 days after the agreed payment date. The forum and the Better Payment Practice Group (BPPG), which lobbied for the implementation of the law, are urging small firms to incorporate the new legislation into documents such as terms of trade on contracts and invoices.

The forum’s chief executive Nick Goulding, who is also chairman of the BPPG, would like to see “more clarification” in contracts to help avoid misunderstandings and payment problems. He sees the late payments legislation as a useful tool to achieving this end.

He believes that mentioning it in relevant documents would serve as a “helpful nudge” for customers, encouraging them to pay their bills on time.

Although there is, he says, an “implicit threat” in including the legislation in documentation, the BPPG sees the law primarily as an “incentive” for prompt payment. Goulding would prefer to see a decrease in late payments rather than many small businesses collecting interest.

He reminds small firms that “cash is king”. Hence a good reason for changing terms of trade to encourage prompt payment, is that it should promote decent cash flow.

He points out that a business which has paid attention to the wording of its invoices and contracts is more likely to be paid on time than one which presents “scrappy” documentation.

Businesses wanting more information and advice on the late payments legislation and more generally how to get paid promptly should visit the BPPG website at

UPDATE: Changes To The Late Payment Legislation

The late payment of commercial debts regulations were updated in 2013. The key changes were:

  • Business to business payment terms – If no payment terms agreed the default period remains at 30 days. Payment terms must not exceed 60 days unless both parties agree
  • Public Sector payment terms – Payment must be made within 30 days unless agreed otherwise
  • Recovery costs – If compensation fees do not cover the cost of claim, it is now possible to claim ‘reasonable’ additional costs. e.g. use of debt recovery agency services
  • Verification period – Where required must not exceed 30 days unless agreed and not grossly unfair to the creditor.

Related Topics

Late Payment