Driving faster payment - the Government launches its Consultation on the new EU Late Payment Directive
Late payment in commercial transactions is all too often accepted as something akin to a "fact of life", particularly where suppliers and customers have longstanding, co-dependent relationships which make them reluctant to raise court proceedings to enforce contractual payment terms. However, from an EU perspective late payment is seen as a barrier to free movement of goods and services, and as having a negative impact on smaller businesses.
The new EU Directive
The new EU Directive 2011/7/EU replaces the Late Payment Directive 2000/35/EC (implemented in England & Wales by the Late Payment of Commercial Debts Regulations 2002 and in Scotland by the Late Payment of Commercial Debts (Scotland) Regulations 2002) and aims to combat the continuing problems in the EU with late payment by setting tougher ground rules designed to drive faster payment in commercial transactions (both in the public and private sector). The new rules are to be implemented in all EU Member States by 16 March 2013. To that end the UK Government has launched a consultation.
Key provisions
The key provisions of the new EU Directive are set out below:
| public authorities will be required to pay suppliers within 30 days following receipt of an undisputed invoice, however there will be an option to extend this period for some sectors (e.g. healthcare) to 60 days; | |
| for business to business transactions the new rules state that the period for payment fixed in the contract should not exceed 60 days, unless otherwise expressly agreed in the contract and provided that the terms are not grossly unfair; | |
| a default payment period of 30 days will apply where the contract is silent (in line with current UK practice); and | |
| fixed compensation of at least €40 will apply to late payments to cover certain costs. |
The UK perspective – the consultation
The Government consultation is relatively short. It asks for comment only on the following:
| whether to exercise the option to extend the payment period for certain public authorities to 60 days (note that the Government does not propose to exercise this option); | |
| whether the UK's current "three tier" compensation structure for late payment should be retained, or whether one fixed compensation of at least €40 should be adopted in line with the EU Directive; | |
| whether the changes should be applied retrospectively; and | |
| whether to repeal or amend the Late Payment of Commercial Debts Regulations 2002. |
Comment
The impact that the implementation of the new EU Directive will have on UK businesses is, in reality, likely to be minimal. This is because the new EU Directive has been very much based on existing UK law and practice, so its implementation in the UK should be a mere formality. The most interesting issue presented by the new EU Directive is likely to be what constitutes a 'grossly unfair' term under a contract extending the payment period beyond 60 days. The Government has not yet provided any guidance or consulted on this point.
