Reaction to the Late Payment EU Directive from Edward Winterton

Edward Winterton, UK commercial director, Bibby Financial Services: “On the face of it, this has always sounded like a good idea in theory, and anything that ensures small and medium-sized firms get paid more quickly has to be welcomed.

“However, it is really an issue about where the power lies in the customer/supplier relationship.

“While this new legislation may enable the supplier to take action and claim compensation if the customer defaults or is late in paying, the reality is that companies have been reticent to do so as they are fearful of the damage to the customer relationship to the extent that they lose any future business with them.

“The other issue to take into account is that the customer may not be able to pay because they in turn are waiting to be paid by their own customers.

Late payment is a real issue for businesses in the UK because it damages cash flow and restricts the level of investment business owners can make. It is one of the reasons why more businesses are looking to use funding facilities such as invoice finance, because they can raise the cash locked in the outstanding customer invoices, to fill that funding gap which is created by late payment.

“So while it is certainly a valid and welcome move to look at how to support small businesses who are struggling because of late paying customers, it remains to be seen whether it will be an effective measure in reality.”

Posted in Bibby Financial Services updates by Edward Winterton on 19 March 2013.

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