The Late Payment Directive is a regulation adopted by the European Union in February 2011 with the aim of combating late payment in commercial operations and protecting European companies, especially SMEs. Late payments have a negative impact on the European economy, causing job losses, financial difficulties and barriers to cross-border trade.
The main provisions of the Directive provide that public authorities must pay for goods and services purchased within 30 days (or 60 days in exceptional circumstances), companies must pay their invoices within 60 days unless agreed otherwise, and the automatic right to default interest and a minimum compensation of EUR 40 for recovery costs are guaranteed. In addition, it is established that EU countries can maintain or implement laws more favourable to the creditor than the provisions of the Directive.
However, in the wake of the current crises that the European Union has been experiencing since 2020, the European Commission intends to carry out a package of SME relief measures (Relief Package for SMEs), within which the revision of the Late Payment Directive is envisaged. In fact, this initiative is currently in the public consultation phase.
An EU Commercial Payments Observatory (ECSO) has also been set up to collect data on the payment behaviour of public authorities and companies. This Observatory is expected to be extended to other sectors and be completed in 2023.
On 12 September, the Commission presented a series of initiatives to address the needs of European SMEs in the current economic context.
In particular, the proposal for a new Regulation on combating late payment in commercial transactions addresses late payments, an unfair practice that compromises the cash flow of SMEs and hampers the competitiveness and resilience of supply chains.
- The new rules would repeal the 2011 Late Payments Directive and replace it with a Regulation.
- The proposal introduces a stricter payment ceiling of 30 days, removes ambiguities and addresses loopholes in the current Directive.
- The proposed text also ensures automatic payment of accrued interest and compensation fees and introduces new enforcement and redress measures to protect businesses against bad payers.