Law closes in on late payers - slowly

4 November 2010
As reported in this month’s IFPSM ezine buyers in all sectors across Europe will soon face a legal requirement to pay their vendors within 30 days, or be required to pay interest and extra charges.

 Don’t despair too quickly though, as the directive will contain a number of sizeable exceptions. The deadline can be extended to 60 days if both purchaser and supplier agree. And the private sector will be able to push payment out further if “expressly agreed” and “objectively justified” (defining the actual meaning of these terms will keep the lawyers busy and in business for a while). For UK buyers this should not present too much of an issue – in theory. The Late Payment of Commercial Debts (Interest) Act 1998 already provides a legal avenue for suppliers to claim interest on late payments on similar terms to the proposed European legislation. In practice, though, the Act has been far from effective . Few cases come to Court, with the cost of legal action and prospective damage to reputation and relationship acting as a turn-off. In one notable case judges even decided the 8 per cent above the base rate interest established in the Act was too high for a vendor to claim. Although the new directive might snuff out Sir Philip Green’s proposal to make government suppliers wait longer for payment, I think it is unlikely to have a long-term impact on this issue. If legislation has failed to address the problem so far, more legislation is not going to make a difference.
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