Firms to right to levy up to £100 for late paid bills
New measure forms part of a package to help combat late payment

Small Business Minister Nigel Griffiths today announced a new package of measures to help combat late payment of bills – a problem that’s estimated to cost small businesses nearly £7 billion at any one time.

For the first time, firms owed money will be able to claim up to £100 in debt recovery costs for each overdue bill, on top of claiming interest on the amount owed.

Mr Griffiths said:
“We are using a European Directive to give positive benefits to millions of UK businesses in three key ways:

• simplifying the calculation of the interest rate for late payment by fixing the rate for a six-month period – rather than fluctuating monthly as at present;

• allowing representative bodies to challenge in court grossly unfair contractual terms on behalf of small businesses; and

• extending the late payment legislation to include businesses of all sizes and the public sector – at present only small firms can claim interest on debt.”

Mr Griffiths announced the publication of a new guide to help businesses benefit from the new legislation, which comes into effect from 7 August 2002.

“Customers who fail to pay on time can have a real impact on the survival of the small business they owe money to.
“That’s why cashflow problems and the time spent chasing debt are on the list of business owners’ biggest bugbears. This new legislation will ensure that the cash keeps flowing.
“It also means that businesses involved in cross border transactions with the EU will have greater payment certainty as a result of having access to legislation similar to that available in the UK.”

The new guidance, entitled ‘A User’s Guide to Late Payment Legislation’, is available by telephoning 0870 150 2500 or can be downloaded from this website by clicking here

It is estimated that small businesses are owed £17 billion from debtors at any one time – £6.8 billion of that paid late – while other research has indicated that approximately 10,000 UK businesses fail each year as a consequence of late payment.

Notes to editors:

1. The amended late payment legislation will come into force on 7 August 2002. The legislation will fulfil the UK’s obligations under European Directive 2000/35/EC on combating late payment in commercial transactions. A consultation on the Directive’s proposals was held during Spring 2001. The compensation available to businesses will operate as follows:

Other changes will:

• create a reference rate for calculating the rate of interest, fixed for six month periods – the Bank of England base on 30 June and 31 December will determine the reference rate for the subsequent six months (1 July to 31 December and 1 January to 30 June);

• entitle business representative organisations, on behalf of small and medium-sized enterprises (SMEs) to challenge grossly unfair contractual terms that undermine the intent of the late payment legislation; and

• all businesses – irrespective of size – and public sector bodies will be able to claim statutory interest on debt.
  Guidance on the new legislation has been available electronically since 15 May 2002 at www.payontime.co.uk

2. In July 1997, the European Commission published a report on late payments in commercial transactions. The report suggested that heavy administrative and financial burdens are placed on business, particularly small and medium-sized enterprises (SMEs) as a result of excessive payment periods and late payment. It cited late payment as a major cause of insolvencies, threatening the survival of businesses and resulting in numerous job losses. The report also found that in some Member States contractual payment periods differed significantly from the Community average. It reported that differences between payment rules and practices constituted an obstacle to the proper functioning of the internal market by limiting commercial transactions between Member States. The purpose of the Directive is to address these difficulties.

3. The United Kingdom was one of the first countries in the EU to implement late payment legislation to help promote a culture of prompt payment. There has been a statutory right for interest for late payment for SMEs enterprises owed money by large firms or the public sector since 1 November 1998, when the Late Payment of Commercial Debts (Interest) Act 1998 came into force. This allows SME’s to charge each other statutory interest, as well as large businesses and the public sector, for the late payment of commercial debt. The Act set the rate for claiming interest on debt at eight per cent per annum over the Bank of England base rate.

4. For the purposes of the new late payment legislation, an SME is defined as having:

• fewer than 250 employees;

• either a turnover of less than Œ40m or an annual balance sheet total not exceeding Œ27m; and

• is independent.

5. The Better Payment Practice Group was formed in 1997 as a partnership between the public and private sectors. Its aim is to improve the payment culture of the UK business community and reduce the incidence of late payment of commercial debt.

You can keep up to date with the Better Payment Practice Campaign by sending us an email