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European Commission

MEMO

Brussels, 05 October 2012

Let's stop business closures caused by late payments

Every year across Europe thousands of Small and Medium Enterprises (SMEs) go bankrupt waiting for their invoices to be paid. Yet late payment of bills is often seen by many as a perfectly acceptable practice. It is time to end this damaging culture of late payment in Europe.

Why do we need a late payment campaign?

Businesses are at risk of failing due to liquidity problems. A recent survey reveals that the written off debt suffered by Europe's businesses has grown to 2.8% of total receivables, to reach the unprecedented level of €340billion, a figure equalling the total debt of Greece, representing one third of total annual healthcare spending across the EU's 27 countries and amounting to more than double the EU's total 2102 budget of €147 billion1. And there is also a divide between the north and the south which is severely hampering the integration of the EU's single market: it takes an average of 91 days for B2B transactions to be paid in the southern region, as compared to an average of 31 days in the north2.

How does the EU help stop late payments?

The Late Payment Directive 2011/7/EU is crucial for the completion of the single market and for restoring normal lending to the economy. The Directive must be transposed into national law in all Member States by March 16 2013. However, the economic crisis and its detrimental effects on European enterprises, in particular SMEs, prompted the European Commission to ask Member States to consider early implementation of the directive.

The Directive corresponds to a real need to switch to a culture of prompt payment in commercial transactions between businesses, and between businesses and public authorities. Its main provisions include the setting of a maximum period for the receipt of payment for goods and services in commercial transactions with public authorities, conferring more rights to enterprises facing late payment, increasing transparency and awareness raising and increasing the statutory interest rate.

What is the late payment campaign and how will it be run?

The European Commission's Late Payment Information Campaign aims to highlight the issue of late payments amongst public authorities, businesses, members of the judiciary and other interested parties. Its objective is to change the attitudes of public authorities and business to paying bills on time, and provide businesses with information on the new measures being introduced to support prompt payment. It consists of a series of national seminars in Member States of the European Union that will highlight the harm being done to businesses as a result of late payments, and explain the new measures being introduced to combat the issue.

Summary of new law under the EU's Late Payment Directive

  • Harmonisation of the 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, only in very exceptional circumstances, within 60 days.

  • Contractual freedom in business to business commercial transactions: Businesses will have to pay their invoices within 60 days, unless they expressly agree otherwise and provided it is not grossly unfair to the creditor.

  • Businesses will automatically be entitled to claim interest for late payment and will also be able to obtain a minimum fixed amount of €40 as compensation for recovery costs. They can also 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 a lower interest rate for late payment.

  • Businesses can challenge grossly unfair contract terms and practices more easily before courts.

  • More transparency and awareness: Member States will have to publish the interest rates for late payment so that businesses have easy access to information on these rates.

  • Member States are encouraged to establish voluntary codes of commitment for prompt payment.

  • The other European provisions against late payment remain in force and have been revised to simplify ambiguous text and eliminate loopholes.

  • Businesses are not obliged to, but have the right to apply the new measures. In some circumstances, a business may wish to extend the payment period for some days or weeks to maintain a good commercial relationship with a specific client.

  • The new measures are obligatory for public authorities. They must lead by example and show their reliability and efficiency by honouring their contracts and paying on time.

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

What’s new in commercial transactions between public authorities and businesses?

If you are a public authority you need to know that:

  • You must pay for the goods and services that you procure within 30 days.

  • If you do not pay within the deadline, you must pay interest at the statutory rate, in addition to reimbursing the creditor for the costs of recovering the late payment. You will not be given a reminder.

  • The statutory interest rate for late payment will be at least 8 percentage points above the European Central Bank’s reference. Public authorities are not allowed to fix a lower interest rate.

  • If you have established a procedure of verification or acceptance in the contract, or if it is provided for by statute, the procedure cannot exceed 30 calendar days unless otherwise expressly stated in the tendering process and in the contract. In addition, the procedure must not be grossly unfair to the creditor.

  • In very exceptional cases, the time limit for the payment period can be extended to a maximum of 60 calendar days.

  • These new measures are obligatory for public authorities. They have a responsibility is to set a good example to the private sector and demonstrate their reliability and efficiency by honouring their contracts and paying on time.

If you are a business involved in a commercial transaction with a public authority, you need to know that:

1. When signing the contract:

  • According to the new rules, the public authority must pay you for the goods or services you procure within 30 calendar days. Only in very exceptional cases can the public authority extend this period to a maximum of 60 calendar days. Any contractual clause that establishes a payment period that exceeds 60 days will be considered to be grossly unfair and will either be unenforceable or will give rise to a claim for damages.

  • Any contractual term in the contract that excludes interest for late payment will be considered to be grossly unfair to the creditor and will either be unenforceable or will give rise to a claim for damages. Contractual terms that exclude compensation for recovery cost will also be presumed to be unfair.

  • Verification and acceptance procedures should be expressly mentioned in the tender documents and in the contract. As a general rule, such procedures cannot exceed 30 calendar days unless otherwise expressly agreed and provided it is not unfair to you (the creditor).

  • The late payment interest rate will be a minimum of 8 percentage points above the European Central Bank´s reference. This rate cannot be negotiated. Any rate below this threshold is in principle considered to be grossly unfair.

2. When facing late payments from a public authority:

  • After the expiration of the payment period, which is 30 calendars days as a general rule, you are entitled, without the necessity of a reminder, to impose the late payment statutory interest rate plus all recovery costs related to late payment, if you have not been paid. The late payment statutory interest rate is fixed at a minimum of at least 8 percentage points above the European Central Bank’s reference.

You are not obliged to, but you have the right to take these actions against your debtor.

What’s new in commercial transactions between businesses?

If you are a business involved in a commercial transaction with another business, you need to note that:

  • Businesses must pay their invoice within 60 days, unless expressly agreed otherwise and provided it is not unfair to the creditor.

  • Businesses can also agree on the late payment interest rate provided it is not grossly unfair to the creditor. If nothing is agreed the statutory interest rate applies (at least 8 percentage points above the European Central Bank’s reference).

If you are a creditor:

In cases of late payment, you are entitled to claim interest for the late payment without a reminder. You can also request reimbursement of the recovery costs for the late payment. To stop any abuse of negotiation power, you have further opportunities under the Directive to challenge grossly unfair contractual terms and practices.

You are not obliged to, but you have the right to take these actions against your debtor.

As a European business dealing with commercial transactions in another Member State, this Directive should make your life easier. From now on your Member State will make public all relevant information on late payment including the interest rate that applies to the corresponding period. The Commission, with the assistance of the Member States, will publish online the interest rate for late payments.

Attend a national seminar

As part of the pan-European information campaign to raise awareness of the issue of late payment and support early implementation by Member States of the Late Payments Directive, the Commission is hosting national seminars in each Member State. These information seminars are an opportunity for relevant parties to better understand the problem of late payments in their country, and receive useful information, training and advice about the combative measures provided by the Late Payment Directive, and other statutory instruments.

The agenda for each national seminar includes an introduction to the issue of late payments, an overview of the Late Payment Directive 2011/7/EU, training Session 1: Business to Business (B2B) and Public Authorities to Business (PA2B),Transparency Rules, Unfair Contractual Terms and Practices, and Recovery Costs, and training Session 2: Steps and Instruments to Overcome Late Payments in Commercial Transactions. There will also be an opportunity to network over coffee and a buffet lunch.

Dates and cities of upcoming events:

For more details

See IP/12/1071

More information on campaign and overview of next seminars

European Commission - DG Enterprise and Industry

European Commission - DG Justice

1 :

Intrum Justitia, "European Payment Index, 2012", p.2.

2 :

Intrum Justitia, "European Payment Index, 2012", p.2.


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