Insolvencies lead to the loss of 450,000 jobs in the EU and outstanding annual debts of €23.6 billion. 57% of businesses in Europe claim to have problems with liquidity due to late payments, an increase of 10% since last year. Every day across Europe, dozens of small and medium sized enterprises (SMEs) go bankrupt as their invoice are not paid.
To end this damaging culture of late payment in Europe, European Commission Vice President Antonio Tajani launched today in Rome an information campaign across all 27 EU Member States and Croatia, to encourage speedy incorporation of the Late Payment Directive into national law, even before the absolute deadline on 16th March 2013. Directive 2011/7/EU on combating late payment in commercial transactions is the EU’s tool to combat overdue payments. The Campaign puts particular importance on ensuring that SMEs know the new rights conferred by the directive and how to exercise these rights.
Information campaign to speed up new late payment provisions
It is particularly difficult for SMEs to stand up for their right to prompt payment. Late payments can lead to high costs in terms of time and money, and a dispute can sour relations with customers. The Directive provides a legal framework for pursuing debtors.
The aim of the information campaign is to raise awareness amongst key European stakeholders, in particular SMEs and public authorities, on the new rights conferred by the Directive; whilst also supporting its early implementation. The campaign also provides a forum for sharing best practices to help SMEs obtain prompt payment.
The new rules are simple:
- Public authorities must 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 should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.
- Enterprises are automatically entitled to claim interest for late payments and can obtain a minimum fixed amount of €40 as a compensation for payment recovery costs. They can also claim compensation for all remaining reasonable recovery costs.
- The statutory interest rate for late payment is increased to at least 8 percentage points above the European Central Bank’s reference rate. Public authorities are not allowed to fix an interest rate for late payment below this threshold.
- Enterprises can challenge grossly unfair terms and practices more easily before national courts.
- More transparency and awareness raising: Member States must publish the interest rates for late payment so that all parties involved are informed.
- Member States are encouraged to establish prompt payment codes of practice.
- 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.
The new measures are optional for enterprises, insofar as they acquire the right to take action but are not obliged to do so. In some circumstances, a business may wish to extend the payment period for some days or weeks to keep a good commercial relationship with a specific client. But the new measures are obligatory for public authorities. They should lead by example and show their reliability and efficiency by honouring their contracts.
The European Late Payment Directive was designed to combat late payment of commercial transactions. Its parent act, the Small Business Act (SBA), reflects the Commission’s will to recognise the central role of SMEs in the EU economy and stressed that effective access to finance is one of the major challenges faced by SMEs.