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Giving SMEs tools to combat late payments

All Rights Reserved © José Luis Gutiérrez

Both inside and outside their own borders, European small and medium-sized enterprises (SMEs) are particularly vulnerable to late payments – one of the leading causes of bankruptcy among SMEs. The lack of protection for SMEs not only cripples businesses and stalls economic growth, but might also discourage would-be entrepreneurs from taking chances. This is why the European Commission has introduced multiple proposals to give SMEs the help they need to inject more dynamism in Europe’s economy.

Every day across Europe, dozens of small and medium-sized enterprises (SMEs) go bankrupt because their invoices are not paid. As a result, jobs are lost and business opportunities remain unexploited, stalling our return to economic growth.

In March, in an effort to combat late payments in commercial transactions, Directive 2011/7/EU entered into force. It compels public authorities to pay for goods and services within 30 calendar days or, in very exceptional circumstances, within 60 days.

‘Late payments mean SMEs lose time and money, and disputes can sour relations with customers,’ said European Commission Vice-President Antonio Tajani, who is responsible for industry and entrepreneurship policy.

Thanks to the new Directive, a business which is due payment has the right to an interest rate at least 8 % above the European Central Bank’s reference rate. Public authorities are also obligated to reimburse the creditor for the additional costs incurred in recovering the late payment.

The new measures are optional for enterprises; they acquire the right to take action but are not forced to do so. However, the new measures are obligatory for public authorities. The new rules also state:

  • Enterprises can challenge grossly unfair terms and practices more easily before national courts.
  • Member States are encouraged to establish prompt payment codes of practice.

This new legislation is expected to create a virtuous circle and gradually encourage a culture of timely payments in all economic activities.

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