Directive #1: Late Payment Directive

What is Late Payment Directive?

Each year across Europe thousands of small and medium-sized enterprises (SMEs) go bankrupt due to surging volume of uncollected receivables. Late payment causes administrative and financial burdens, which are particularly acute when businesses and customers are in different EU countries According to a survey by Intrum,† only 27% of the SMEs are aware and familiar with the provisions of the late payment directive. Hence, EU Commission adopted this directive† combating late payment in commercial transactions. Some major provisions of the directive is as follows:

• †Pay for the goods and services within 30 days or, maximum within 60 days.

• Automatic entitlement of the payer to interest for late payment and for recovery costs. ?40 minimum as compensation

• Statutory interest of at least 8% above the European Central Bank?s reference rate.

What it means for your OTC team?

1.Faster payment cycle† With the payment terms set in such a way that the suppliers will get the payments within 60 days at maximum, the supplier could potentially reduce their cash conversion cycles. 2. Reduced bad debt Under the fear of having to pay an extra compensation of £40, £70 or £100 depending on the size of the debt (under £1,000, under £10,000, and higher), plus additional reasonable costs incurred, the debtors will tend to pay on time. Therefore, it will contribute in reducing DSO and consequently reducing the bad-debt that would have been written off. 3. Compensation for late payments For debtors who still pay late will have to pay extra compensation along with the statutory interest of at least 8% above the European Central Bank?s reference rate. Even at this stage, companies might have considered to pay late along with the extra charges involved. However, the high rates and fines ensure that late payment is compensated appropriately. Next Steps: How to drive compliance

1. Invoice customers promptly.
2. Send proactive reminders.
3. Process multiple payment formats.
4. Go for a plug-and-play self-service payment portal for customers.