The new EU payment Directive (2011/7/EU), designed to help prevent late payment of invoices and unfair payment terms, will be implemented by the UK a year ahead of its March 2013 deadline, business minister Ed Davey has recently revealed.

During a Commons debate at Whitehall last week, Mr Davey revealed that a second consultation into the Directive will take place this winter, which will then transpose the legislation into UK law in the first half of 2012.

In respect of dealings between undertaking (i.e. any persons or organisations which are not public authorities), the Directive sets standard payment terms at 30 days from receipt of any invoice (or receipt of goods or services, if received after the invoice is presented or the date for receipt of invoice is uncertain). Any creditor shall be entitled to interest for late payment from expiry of the terms without the need for any further reminder to be provided to the debtor. Payment terms can be amended by express agreement between the parties on the condition that, if the terms exceed 60 days, those terms are not deemed to be "grossly unfair". Any contractual term which excludes interest for late payment shall be deemed grossly unfair, pursuant to the Directive.

The UK is also under a duty to ensure that it provides adequate and effective means to prevent continued use of grossly unfair contractual terms and practices, to include allowing officially recognised organisations to bring formal proceedings against undertakings that they consider to be in persistent breach.

Where interest does become payable, the creditor is entitled to interest at 8% above LIBOR plus a fixed handling fee of at least €40 and its reasonable recovery costs (to include legal expenses). The prescribed interest rate and fixed fee may be subject to change, due to the UK's existence outside of the eurozone.

Although late payment does of course constitute a breach of contract, it has been financially attractive for debtors to enter into such a breach on the basis of low or no interest rates and/or slow procedures for redress, often through the issue of formal court proceedings. Recent figures released by the Federation of Small Businesses in July found that 73 per cent of businesses had paid late in the last 12 months and that, on average, more than a third of a company's turnover is tied up in late payment. The intention of the new legislation therefore is to shift the present culture to one of prompt payment.

Tom Williamson of Harris Cartier's Commercial Litigation Department welcomed the news that the Directive is to be implemented ahead of time: "It is good to hear that the government is taking this issue seriously, particularly in the current economic climate, where cashflow issues are becoming increasingly important; however, any person or company entering into a contract for the provision of goods or services should always, by way of best practice, enter into a written contract with the other party to ensure certainty of terms and to assist them should they need to enforce those terms in the future".