Regulation update: Late Payments Directive

Posted on 7 Mar 2012

Cash flow is vital for any company, especially so for SMEs. Yet selling on

Nigel Taylor - Head of e-invoicing at cloud transaction service provider GXS
Nigel Taylor - Head of e-invoicing at cloud transaction service provider GXS

credit and getting paid on time became such a widespread challenge in Europe that in 2000 the European Union issued a directive giving suppliers legal rights to charge interest on outstanding payments. Nigel Taylor, head of e-invoicing at cloud transaction service provider GXS, reports on plans to update this directive.

Despite good intentions on the parts of many, a recent survey by the UK Federation of Small Businesses (FSB) revealed that 73% of UK businesses were paid late in 2010/11 with the average SME being owed £27,000 at any one time.

A new EU directive (2011/7/ EU) is due to be implemented in 2013 to address this challenge by ensuring private companies settle their invoices within 60 days. Article 7 of the directive states that a buyer cannot alter the date or period for payment, ask the supplier to waive the late payment penalty rate of interest or indemnify themselves against supplier payment recovery costs.

Ed Davey, in his previous role of UK Business Minister, stated that the UK Government will implement the new directive ahead of the 2013 deadline, by mid-2012. The UK Government’s interpretation may allow suppliers to charge interest on payments made after the 60 day period at 8% above LIBOR alongside a £35 late payment fee. If debt recovery services are required, the debtor will also have to reimburse the recovery costs incurred by the supplier.

The current UK Business Minister, Mark Prisk, has reiterated his predecessor’s intentions and as part of a “financial fitness” campaign has encouraged SMEs to:

  • Proactively agree payment terms before delivering orders
  • Sign-up to the Government’s Prompt Payment Code
  • Raise complaints over late payment to help companies pursue late payers
  • Use electronic invoicing where possible, to automate the process, with instant transfer of the invoice combined with instant verification from the customer that the invoice has been received.

Large companies may be under greater pressure to pay bills on time but additional pressures are mounting. A Treasury survey by GTNews stated that nearly 50% of large UK corporate financial leaders are more likely to extend supplier payment terms now than 12 months ago.

Over 50% of the respondents intend to reduce the number of debtor days on their own outstanding payments in 2012. This increasing tension between reducing day’s sales outstanding (DSO) while increasing day’s payables outstanding (DPO) indicates that more companies, irrespective of size, are concerned about cash-flow and liquidity.

The FSBs 2011 survey showed that 56% of its members had written-off invoices worth between £1 and £9,999 because of non-payment and the manufacturing industry was highlighted as the worst culprit for late-payment.

Electronic invoicing is a key initiative to ensure invoices are paid on time. Automating the process allows for transparency and simplification, and the financial rewards of e-invoicing help to reduce processing costs from around €17.60 to €6.70 (Billentis, 2010) – a 62% saving per invoice processed.

Processing invoices promptly and having payables information in ERP systems quickly allows treasurers to make informed decisions about payment timing. Early payment discounts which represent a high-yield net return compared to extending DPO can help prioritise these payments.

For now it seems many manufacturing companies have their work cut out in removing a reputation as poor payers, in the UK at least. However, there is significant interest in the opportunity of electronic invoicing within industry groups like Odette and EDIFICE, which demonstrates that manufacturers are beginning to embrace the benefits of e-invoicing both for their own company and for their suppliers too.

Parental Leave Directive

Chris Coopey - ex-engineer and partner at Carpenter Box LLP
Chris Coopey - ex-engineer and partner at Carpenter Box LLP

Delays to changes for parental leave are simply postponing the opening of the flood gates says Chris Coopey, ex-engineer and partner at Carpenter Box LLP.

The Department for Business Innovation and Skills, has confirmed that changes to the Parental Leave Directive have now been deferred by a year and will come into force in March 2013. The deferral is due to a delay in the outcomes of a BIS consultation on Modern Workplaces but these are due in the next few months.

The status quo

The current Parental Leave Directive was introduced in 2010 as a Europe-wide initiative to allow both parents to take time away from work in a child’s early years. The directive currently gives parents the right to thirteen weeks of flexible, unpaid, parental leave per child, with the following conditions:

  • Leave is per parent and non-transferable, so each parent has a separate three month period which they cannot swap
  • The leave must be taken in blocks of a week, no more than four weeks per year
  • Workers must be employed for at least one year to qualify

There are special provisions for parents of disabled children and for adopting parents, and the directive only specifies minimum requirements, so it is left to individual employers to extend the leave periods or decide whether the leave is paid or unpaid.

The future

The revised Parental Leave Directive, which will now come into force in March 2013, is aimed at providing a better balance between work and family life by allowing parents to transfer the leave to each other, and will:

  • Extend the period of flexible leave to eighteen weeks per parent per child in all cases, stipulating that four weeks of the period is to be non-transferable
  • Give parents returning from parental leave the right to request, for a limited period, changes to their working hours or patterns

The directive is aimed to catch all, so the right to parental leave applies to all employees including part-time, contract and agency workers. Employees who request such parental leave will be protected from being disciplined or discriminated against for making any requests and must be given back their job, or an equivalent one, when they return.

The impact

On the positive side employers can breathe easier for the fact that they have an extra year to prepare for the administration of another layer of employment regulation. The negative is that the Modern Workplace consultation is likely to result in yet more regulation in 2015, as the Government explores ways of encouraging the sharing of childcare more equally between parents by allowing them to determine their own balance between employment and childcare.

For SMEs in particular though, complex employment regulation weakens the ability of employers to work with their employees in a flexible and efficient way. Administering the regulations is difficult, with many businesses being too small to have their own HR professionals. This tends to result in SMEs trying to ‘wing it’, risking employment claims, or in them having to buy in potentially expensive consultancy. So, on the one hand we have the Prime Minister saying that he wants to change the culture of regulation in Whitehall, on the other hand we see a regulatory roadmap which directly contradicts this aim.

In its response to the Modern Workplaces consultation, the Institute of Directors commented: “Further regulation of employers, imposing more costs and burdens, should be a last resort after non-legislative options have been explored, rather than the first tool reached for.”

This is a feeling commonly expressed by business leaders alongside a call for more joined up thinking from Government – a call which Carpenter Box actively supports, both on its own behalf and for those we work with.