EU Commission wants SMEs to be paid faster by large corporates

As part of its “SME Relief Package”, the European Commission presented on Tuesday (12 September) a regulation to combat late payments between businesses, replacing an older EU directive that had proven to be ineffective.

Across the EU, business-to-business payments will have to be executed within 30 days of the issuance of the invoice. If the payment is delayed beyond that, companies will automatically be allowed to charge interest as well as a fee of EUR50.

This “will create a fairer business environment for SMEs,” Internal Market Commissioner Thierry Breton said on Tuesday.

In the EU, many invoices are paid late. According to a study from 2015, only 39% of EU companies respect agreed payment terms and more than 50% of payments are delayed by 10 days or more.

According to a Commission official, the problem is especially pronounced if a small company expects payments from a larger company that can use its power to dictate the payment terms.

This can lead to liquidity problems and, in extreme cases, the bankruptcy of SMEs, for which chasing debtors is a bigger burden than for large corporations. Moreover, it also leads the SME to pay its own invoices too late, thus pushing the delay along the entire value chain.

Under the new regulation, companies will be allowed to automatically charge interest payments and a flat fee of EUR50 for commercial payments that are delayed by more than 30 days. The strict payment term of 30 days has been a key demand of the SME association SMEUnited.

Already in 2011, the EU adopted a Late Payments Directive. But it contained several exceptions and possibilities to further delay payment. Moreover, being a directive instead of a regulation meant that each member state could decide individually how to implement the rule.

“It has really been a nightmare to harmonise this,” Breton told journalists, explaining the failure of the directive.

According to a Commission report from 2015 acknowledged that the directive had not had “any major impact on payment behaviour”.

In addition to large companies taking advantage of their relative power over smaller companies, public authorities are another part of the problem.

The 2015 report found that “public entities in more than half of all member states are not yet respecting the 30-day limit imposed by law.”

This public tardiness should now become a thing of the past. “No more exception for the public sphere,” Commissioner Breton stressed, adding that this had been abused too often.

In addition, the new regulation would force member states to introduce enforcement authorities that will help companies get their money on time.

Also, companies that get public contracts will have to submit proof that they have paid their subcontractors on time. Somewhat ironically, this measure was proposed as part of an “SME Relief Package”, one of the main targets of which is the reduction of reporting requirements for SMEs.

Before the regulation can come into force, it will need to be discussed and approved by the European Parliament and by a qualified majority of national governments in the EU Council.

[Edited by Zoran Radosavljevic]