The European Commission collected stakeholders’ feedback on the upcoming update of EU rules related to late payments.
While the Late Payment Directive was adopted in 2011, with the purpose of combatting late payments, in practice problems persist: according to European Commission’s data, more than 60% of EU businesses are not paid on time, which particularly affects SMEs, and late payments cause 1 in 4 bankruptcies.
CECOP has supported the adoption of the 2011 Directive. Since the late payments issue persists, we support a revision of the directive. The revision is all the more important in the current context, as businesses already face increased issues with liquidity and other economic difficulties brought about by the war in Ukraine.
Worker and social cooperatives in CECOP’s network are mostly SMEs, and they suffer from late payments from public authorities (business-to-government, B2G) and from other businesses, especially large companies (business-to-business, B2B). Large companies in particular use the imbalance of power in relations with SMEs by pushing SMEs to accept late payments, which for large companies is an additional way to finance their operations. Liquidity problems caused by being on the receiving side of late payments sometimes also lead SMEs to be late payers themselves. The gravity of the situation varies across the EU, but we see a need for a strong response on the European level.
European Commission has proposed a number of options to address the large amount of late payments:
- Proactively addressing late payments, by clarifying/tightening the rules and introducing stronger deterrents;
- Creating better conditions for prompt payments, such as modern payment tools and SME-friendly business environment;
- Strengthening enforcement in case of late payments.
Overall, CECOP supports the suggestions made by the Commission. In our response, we highlight the following points in particular:
- All policy measures suggested by the Commission to prevent late payments must apply not only to private businesses but also to public law entities.
- Public authorities and primary contractors in the framework of public procurement contracts must be held responsible for timely payments down the chain, to their subcontractors. This is one of the key measures for preventing late payments. Laws with this objective have been adopted in Spain and Italy. In Italy in particular, the subcontractor can obtain direct payment for their services from the contracting public authority, in case the primary contractor has defaulted or where the nature of the contract allows it.
- Unfair practices and clauses must be clearly defined.
- Introduction of a strict limit on maximum payment terms in both B2B and B2G transactions is important.
- Automatic withdrawal of unpaid invoices will facilitate VAT refund to the seller. Currently, it can happen that a company has to pay VAT for an invoice that has not been paid by the buyer yet.
- It is useful to promote modern digital payment tools that will help to ensure timely payment and monitor the entire payment cycle, including at the aggregate level.
- We support facilitating availability and access to credit management training and financial literacy (digital as well) for SMEs; laying down common minimum criteria for prompt payment schemes; and rewarding prompt payment in public procurement procedures.
- Enforcement is important, in particular, for malicious late payers. Introduction of administrative penalties is to be supported.
- In Italy, a new law foresees direct liability of directors in all cases of improper management of payments to creditors by a private company, but this is not the case for directors of public law entities.
- More widespread use of mediation and out-of-court dispute management mechanisms is welcome. Currently, these tools are not always effective or trusted, and sometimes can be used maliciously for delaying the process of dispute resolution. Malicious and obstructive behaviour by debtors must be sanctioned.
- In addition to the measures listed by the Commission, the problem of late payments requires improved access to financing including long-term crediting. As mentioned above, the cause of late payments is often lack of liquidity. Improved access to financing would favour SMEs which have more difficulties in accessing credit lines than large companies.