Fabian Demicoli

New rules against late payment

The directive on combating late payment in commercial transactions is aimed to give better protection to creditors, in most cases SMEs, while respecting the freedom of contract. Public authorities will have to pay within 30 days, or else pay an interest rate of 8%. This measure is expected to result in an extra €180 billion of liquidity being available to businesses.

 

European Commission Vice-President Antonio Tajani, Commissioner for Industry and Entrepreneurship said: "Who works must be timely remunerated. This is a basic principle of fairness but plays a crucial role in relation to the solidity of a company, its treasury, its access to credit and to finance. Therefore, the new directive will help the entire European economy."

The new provisions of the directive include, among others:

Harmonisation of period for payment by public authorities to businesses: Public authorities will have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.

Contractual freedom in businesses commercial transactions: Enterprises will have to pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair. 

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

The statutory Interest rate for late payment will be increased to at least 8 percentage points above the European Central Bank's reference. Public authorities are not allowed to fix an interest rate for late payment below.

Enterprises can challenge grossly unfair terms and practices more easily before Courts.

More transparency and awareness raising: Member States will have to publish the interest rates for late payment so that undertakings have easy access to these rates.

Member States are encouraged to establish prompt payment codes.

Member States may continue to maintain or to bring into force laws and regulations which are more favourable to the creditor than the provisions of the Directive.

Next steps

The Directive will have to be transposed into national law within 24 months from its adoption.

GRTU welcomed the vote at the European Parliament. MEPs approved a directive that regulates transactions between public authorities and businesses as well as B2B relations, setting a 30-day time limit for both that will be very beneficial for European SMEs if properly enforced.

The approved text is the best possible compromise, although it is long overdue. The new rules must be now quickly put into practice and properly enforced. MEPs committed themselves to closely follow the implementation process – we will certainly do the same, and we hope that the new rules will reign in the plague of payment delays. Public authorities routinely exceed payment terms to the detriment of small enterprises. On average, the public sector is the worst payer time wise. With all the recent talk of economic stimulus and at a time when businesses are clearly struggling, Government could inject money into their economies simply by paying private enterprises on time. After this vote, public authorities at all levels cannot refrain from acting any longer.

B2B relations will also be better regulated, which strikes a reasonable balance between contractual freedom on one hand and the right to prompt payment on the other. Payment terms longer than the norm will only be possible if both parties agree and if the arrangement is not grossly unfair. This is crucial for smaller companies, which tend to be owed more than they owe.

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