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Good news and bad news as EU imposes 30-day payment terms

London, UK (17/09/2010)

LONDON (Management Today) The new EU ruling should help small firms - except for those dealing with the UK public sector, where it could actually make things worse.

For most businesses, late payments  are a fact of life – so it should come as a relief to hear that the European Union is planning to impose a standard 30-day late payment deadline on all  businesses. There's only one problem: the UK public sector already has a  self-imposed 10-day deadline, which means some providers could end up waiting longer for their money than they do now. The Forum of Private Business has already called for the UK Government to retain its shorter terms to protect  smaller public sector suppliers - although with spending cuts imminent, that may be the least of their worries...
The new ruling will mean that anyone who overshoots the 30-day limit will be slapped with a €40 (£27) compensation fee, as well as an 8% surcharge on the cash they still owe. Since businesses are currently owed something in the region of £24bn in late  payments, that's certainly positive – particularly for those who are used to  dealing with large retailers, some of whom are known to take as long as 90  days to cough up. Then again, it cuts both ways: for small firms who have, for one reason or another, been able to agree longer payment terms with their  suppliers, cashflow could get tighter when the new legislation comes into force. 
Still, for those businesses working with public sector bodies, it’s going to come as a bit of a blow if David Cameron scraps the current payment target to comply with EU rules - although there's been no indication yet that he's planning to. Any other cash-strapped supplier of that size would be sorely tempted to extend their deadline, to free up a bit of  short-term cash - but unlike businesses, the Government doesn't really have to worry about running out of the readies (since it can always borrow or print more).
That said, surveys by the FPB have shown that the 10-day target, instigated by Gordon Brown in 2008 as part of a package to help struggling businesses, hasn’t been a roaring success: of all invoices to  English councils, just 44% have been paid within the allotted timeframe, and less than a third of those to the NHS. So perhaps reverting to 30 days wouldn't make much difference, in practice.
What's more, given the extent of the spending cuts due in October, any business that manages to hang on to a public sector contract will probably just be thanking their lucky stars that they’ve got one at all – never mind what the payment terms are.

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