The new EU Late Payment Directive which comes into force on the 16th March 2013 is good news for SME’s. Used effectively in credit control procedures, it will boost cash flow and profitability.

In essence it strengthens the provisions of the Late Payment of Commercial Debts Act by ensuring private sector businesses pay their debts within 60 days (30 days for the public sector) failing which creditors can now charge all reasonable costs incurred in recovering the debt in addition to interest and a fixed charge. Carole Hughes managing director of Daniels Silverman said “The high cost of issuing legal action without knowing if it will be successful is prohibitive. The MOJ’s latest statistics show a 15% reduction year on year continuing the downward trend since 2007. This new legislation will allow creditors to recover their reasonable costs of recovery action they are forced to take to obtain payment. This means there is a real alternative to Court action. Most debt collection agencies (DCA’s) only charge on successful recovery and now their costs should be recoverable from the debtor’s business” Worryingly most businesses are unaware of the new legislation and will therefore be missing out on the real benefits it could deliver to their business. Carole added “In a recent survey of SME’s 100% said their business had suffered due to late payment, the majority suffering losses in excess of £20,000. Only 1 in 3 were aware of the new directive and 72% were sceptical and believe it will make no difference to them. This is not the case. By using the full force of the legislation it should lead to debtors paying more quickly or facing the consequences of late payment penalties. Creditors need to act quickly to embrace the new legislation.”