While the precise reasons for any two individual companies failing are rarely identical, often there are common threads – and foremost among these is almost always cashflow. The good news is that the EU Parliament is moving to quell some cashflow problems for companies by tightening the rulings surrounding late payments.

Under the EU’s late payment directive, the public sector will have to pay private business invoices within 30 days, while there will be 60 days for the private sector. Companies will be able to charge 8% over LIBOR plus a €40 (£35) handling fee for late payment, without any prior notice.

The coalition government is so keen on this EU Directive – an unprecedented situation – that it is planning to implement the legislation to bring it into effect 12 months ahead of the 2013 deadline.

However, while tighter controls on payment terms will almost certainly be welcomed by the majority of smaller printers, some are less than convinced about just how effective the new legislation will be. Easibind managing director Harry Skidmore believes that, in most cases, credit terms will still be dictated by the relationship between two businesses, regardless of what any legislation dictates.

"Most companies will agree commercial terms based on the relationship that exists between the two companies. Legislation is a belt and braces option when chasing payment, but commercial agreements are based on trust, and the problem in the industry is the current lack of trust to offer credit terms or to reduce credit terms," he says.

Playground bullies
And trust is at the heart of the issue that enforcing this legislation will inevitably bring: if nobody blows the whistle on late paying clients, then they will never be brought to book. Just as in the school playground, bullying is outlawed, but if nobody tells teacher, then the bullies will continue to get away with it.

The bullies in this instance are the big customers with multimillion-pound budgets, such as the large supermarket chains. Working with companies of this size is prestigious and risk free to an extent, so while they may insist on 120-day payment terms, the printer can be confident that his client isn’t going to go bust overnight and will cough up eventually. The risks associated with telling a big client to pay up in 60 days or face interest charges are far outweighed by the benefits of remaining on good terms with such a big-spending customer.

Glossop Cartons managing director Jacky Sidebottom agrees. She says: "With a few customers, I could enforce tighter payment deadlines, but with some of the larger clients, I wouldn’t risk it, I would just grin and bear it.

"The legislation is great in principle, but, as with all these things, it takes guts to enforce. It is the culture we need to change – name and shame anyone paying later than 60 days and make it the norm to pay in 30 days. Most of our clients are super, but a few are really naughty it really disgusts me that some companies’ ethos is payment evasion."

According to Alchemy Coatings managing director Nigel Anderson, larger companies could even benefit from the ruling, by extending credit terms to customers past the recommended dates as a way of winning business from smaller competitors.

He believes that the only major change that the legislation will bring is to reduce potential bad debt. "Most companies get paid on 60-day terms, which is generally stretched to 75-85 days and then in turn you pay your suppliers in the same time frame. Therefore, one cancels the other out," he says.

"If it halves the size of bad debts it can only be a good thing, so in my opinion it is worthwhile. I’m not quite sure how it will be policed and enforced, nevertheless the brains of our great nation can work that one out. If it isn’t enforced it won’t last 10 minutes," he adds.

Since coming into power, the coalition government has made a lot of noise about protecting and helping small businesses. However, as with many of these moves, we will only really see how much help they have given once the scheme has been up and running a while.

It will certainly help in some instances, but no matter what legislation is put in place, unless it brings clients of all shapes and sizes to account, it will be the smaller suppliers that suffer, while the big businesses ride roughshod over all in their path.

30-SECOND BRIEFING
• The European Parliament has issued a directive (2011/7/EU) intended to combat late payment in commercial transactions. EU member states are required to implement the directive by March 2013
• The UK’s coalition government directive is so keen to see this legislation enacted that it is planning to implement the legislation by March 2012. This is partly being done as a result of lobbying and criticism from the UK’s SME community
• Under the directive, public sector organisations will have to pay all invoices within 30 days, while private businesses will be required to pay within 60 days
• Companies will be able to charge 8% over LIBOR plus a €40 (£35) handling fee for late payment, without any prior notice
• While SMEs will welcome the official backing for shorter credit terms, many are sceptical about how effective the legislation will be in persuading small firms to blow the whistle on big customers