Payment regulations in the UK

When dealing with other businesses, you can claim interest on late payments. However, if you mainly deal with consumers as customers, this legislation can't help.

Since 2011, the EU has had a Late Payment Directive in effect, with clear guidance on how and when you can charge interest and pursue debt collection. As this is an EU regulation, it's not clear how it will be affected if/when the UK leaves the European Union. This Directive applies to commercial debts, so it won't help you pursue late-paying consumers.

In April 2017, the Duty to Report on Payment Practices legislation came into effect. This requires some 15,000 businesses in the UK to report on their payment practices. And 2019, the Chancellor announced further plans to ‘tackle the scourge of late payments’, including businesses nominating a non-executive director to take responsibility for the supply chain. Though steps like these are designed to help small businesses get paid on time, it’s still too early to tell whether or not it will be enough to see the end of late payments.

What do you do if you have late-paying or non-paying consumers as customers?

Unfortunately there's no easy way to resolve this, short of legal action via a court. This can be an expensive and drawn-out process. Some companies prefer to either pay a debt collection agency to recover what's owed to them, or simply sell the debt on – at a discount – to such an agency. Neither method is ideal because you're unlikely to get back the full amount you are owed.

“Definitely the larger companies need to make sure they pay on time or within 30 days. There are directives in place but not strong enough.” - Alex Falcon Huerta of Soaring Falcon

Clearly, prevention is better than cure. If possible, ensure your customers are signed up to 'pull' payment methods such as Direct Debit via GoCardless. This way, you can take payment directly without the need for re-authorisation. It means the customer doesn't have to do anything in order to pay you, which is obviously a big benefit to you.

“A lot has been written and discussed about penalising businesses for late payment. This would be hugely helpful to smaller businesses working with larger companies,” says Bobby Lane, Partner at Blick Rothenberg. But he also sees more widespread possibilities. “I also believe that the Government should spend time working with businesses and educating them on how to fund working capital, what is available and how to access it. People set up a business because they are good at providing a specific good or service, they are not all experts in managing working capital so it is up to the professionals, providers of finance and the Government to support these businesses through legislative measures and education.”

“How do you force a company that has no money to pay? Not all larger companies are free from faults, but it's a tricky one to police. If I have no cash [...] it might just be market conditions. At what point do you penalise companies for market conditions?” - Joe David, DS Accountancy