3 October 2018

As the UK moves ever closer to the Brexit door, Europe’s assistance is being sought to tackle a long-standing problem — that of late payments.

Research by the Federation of Small Businesses (FSB) shows that failure to pay invoices within the required time is a problem for the great majority (85%) of small firms operating in European supply chains.

In “Pay it forward: Lessons and recommendations for Europe from the UK payment landscape” (available at http://bit.ly/2xSCYSE), the FSB argues that the EU’s Late Payment Directive has failed to stop poor payment practices.

It therefore wants the European Commission to strengthen small businesses’ legal protection against lengthy payments terms by more precisely defining the term ‘grossly unfair’ as used in the Directive.

Too many small businesses are currently forced to agree to payment terms of over 60 days, the report makes clear, with a loophole in the legislation allowing parties to agree terms as long as they are not grossly unfair to the creditor.

Almost a quarter (22%) of small firms report payments terms of over 60 days, while 37% have seen their payment terms increased over the last two years and 12% have been asked for a discount in return for prompt payment.

Among other recommendations, the FSB also wants to see sector-specific ombudsmen appointed for those areas most at risk of late payments (such as the food supply chain and construction) and large suppliers excluded from major central government procurement opportunities unless they can demonstrate fair and effective payment practices for subcontractors.

“Even with the UK leaving the European Union next March, the reality is that the EU single market will remain the biggest market for British small firms for the foreseeable future,” FSB Chairman Mike Cherry pointed out.

That is why, he added, that it is vital that a culture of prompt payment flourishes across Europe.