New payment legislation is to be introduced in 2012, to set 30 days as the settlement period for payment of invoices. The directive will consider a payment term of more than 60 days “grossly unfair” which will benefit small businesses and enterprise who often have to wait ridiculously long periods for payment.

The introduction of the directive will mean that both public authorities and private sector companies will have to settle an invoice within 30 days. However, the company could arrange a settlement period of 60 days if the supplier has given time to review and confirm receipt of goods. If an invoice isn’t settled promptly, the business owner is entitled to charge interest on the outstanding amount, at the rate of eight percent, plus £35 administration costs.

Small businesses frequently experience problems obtaining prompt payment, and they often don’t receive payment until 39 days after the settlement date. Large companies usually request longer payment terms, according to the Forum of Private Businesses. Boots settles its bills after 105 days, while 95 days is the usual term for Carlsberg UK.

Public authorities often settle invoices within a short period of time. Local councils average at 18 days, while Whitehall pays within five days. According to the business minister, Ed Davey businesses don’t have sufficient control over this area. He said:

“Better management of invoices is something that we should emphasise. We believe that more than half of all UK business transactions take place with no pre-agreed payment terms, which is astonishing.”

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