Late payment from customers or long periods before payment are an issue that many small businesses struggle with. A recent report states that one in five firms also said that the issue of chasing late payments has become significant with the total amount owed to UK SMEs a whoppping £35.3 billion. The government has stated that late payment decimates cash flow and forces many firms into administration.

While the Institute of Credit management has set up a Prompt Payment Code  this code is entirely voluntary for businesses and suppliers and does not have any legal controls.

However, as of March 2013, the European Late Payment Directive comes into force in the UK with a series of simple rules:

Public authorities must pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.

Enterprises should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.

Businesses are automatically entitled to claim interest for late payments and can able obtain a minimum fixed amount of €40 as a compensation for payment recovery costs. They can also claim compensation for all remaining reasonable recovery costs.

Recently Michael Fallon, the Business and Enterprise Minister, sounded out a warning to Britain's big businesses that if they fail to sign up to the Prompt Payment Code (PPC) that they will be named & shamed.