Late payment directive could cut business failures

The regulation would set 30 days from being invoiced as the standard term for repayment. That period would be raised to 60 days if a grace period had been contractually agreed to review the goods.

Any payment later than 60 days would be termed “grossly unfair​” and could be pursued through litigation with interest of 8% above the European bank rate being charged plus a £35 fee for costs.

Phil McCabe, FPB spokesman, told FoodManufacture.co.uk: “We all know how important cash flow is to businesses and banks are not lending – certainly not affordably – to small firms so it’s vital that businesses get paid on time and in full for the work they do.”​

David Darlington, a partner for accountancy firm Mitchell Charlesworth said: “The new limits which the directive introduces will help to clamp down on unfair payment terms and encourage a change in culture, ensuring that paying late is simply unacceptable.”​

Cash flow​

Late payments restricting cash flow is a key reason for many firms going bust in food manufacturing. However, although manufacturers would receive payments from retailers more quickly, they would have to pay their suppliers more promptly. In September last year, the FPB complained that Molson Coors, Carlsberg and United Biscuits, among others, had delayed payments to suppliers.

A spokeswoman for the Food and Drink Federation (FDF) said the directive was something the organisation found hard to comment on as it represented both end-product manufacturers and suppliers.

But, Terry Jones, FDF director of communications, said: “Clearly cash flow is the life blood of a business. Quite how UK government will implement the payment directive isn’t altogether clear and we await more detailed proposals from the Department for Business, Innovation and Skills.”​

The FPB hopes the directive will create a trickle down effect, benefiting all companies further down the supply chain. The current situation of each company in turn being forced to “squeeze their smaller suppliers to create artificial lines of credit at their suppliers’ expense”,​ because of late payments from the company above, would be reversed, McCabe said. ​

Impact​

A spokesman for the British Retail Consortium (BRC) said the directive’s impact would be minimal as most of its members’ contracts would still fall within the new directive’s boundaries.

“It still allows payment within 60 days if that’s a contractual term. On the whole, that’s the kind of parameters that retailers fall within,”​ he said.

But the BRC disagreed with government interference in interactions between businesses on principle. “Payments are one element of what is in a contract and it shouldn’t be for lawmakers to determine or restrict what businesses can freely include in contracts that they voluntarily sign.”​

The directive will be enacted in early 2012 – a year before the EU deadline. This represents a break with government policy to not implement EU directives before absolutely necessary, said Darlington.