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The Late Payment Directive: what it means

As a small enterprise or new business, it is incredibly easy to find yourself at the mercy of larger businesses when it comes to securing payment.

This is balance of power is never more observable than in reference to late payments. Without a means of recourse, or the ability to highlight their plight (unfortunately, this perk is usually reserved for larger businesses with an established reputation), small businesses can find themselves in a situation in which late payments are normalised and power over the payment schedule taken out of their hands.

This not only makes it difficult to keep to planned timetables, but can also cause problems when it comes to making your own payments or making preparations for future expansion.

Fortunately, this looks set to change with the arrival of a new EU directive that seeks to alter the way in which businesses interact and deals specifically with transactions between small and large organisations. This should prove especially beneficial to small and medium sized enterprises that may have been struggling in the current economic climate and require a more equal working partnership with those larger companies they interact regularly with.

Known as ‘the late payment’ directive, the legislation is part of a number of measures looking to help stimulate Eurozone economies through the promotion of small business interests.

Insolvency practitioner Moorfields Corporate Recovery wrote on their website that the directive attempts to create an environment in which all businesses, regardless of size, have a great deal of pressure placed on them to pay invoices within 60 days.

This is reduced to 30 days for public sector organisations, many of which have a reputation for late payments. This gives small businesses the opportunity to make detailed and fairly concrete plans for the immediate future, safe in the knowledge that payments will be paid within a definite time frame. By removing the doubts that surround transactions between businesses of varying sizes and reputation, small businesses are expected to benefit from the security of on-time payments with greater opportunities for expansion and growth. This could reduce the numbers of SMEs entering into Company Voluntary Arrangements.

The late payment directive should mean that structural adjustments are required within businesses looking to ensure that they do not fall foul of the new regulations and meet the deadlines established by the directive.

Though changes may take a while to implement, and even longer for their effects to become observable, legislators appear to be hoping that the directive will have a wide-reaching and long lasting influence on the way in which transactions are made between businesses of varying size.