Europe to tighten Sanctions on late payers

  • This article is aimed at those people managing Small to Medium Enterprise credit control teams.

    The European Parliament is quoted as saying on 5 October 2010:

    “Smaller companies all too often endure severe financial problems due to the late payment of bills. For over a year the European Parliament has pushed to secure stricter and clear-cut rules on payment periods, including a general 30-day deadline. On Tuesday, the Internal Market Committee voted to endorse the deal struck with Council on 13 September.”

    Barbara Wieler is also quoted as saying:

    “This legislation will bring about a new ethics of payment in Europe. The new rules will provide better solvency and allow small and medium-sized companies the opportunity to promote more innovation and jobs”

    The current legislation provides for compensation in addition to interest per unpaid invoice. This Directive, still requiring formal approval by the European Parliament adds further rules on payment terms:

    The new rules

  • Business-to-business – 30-day general deadline unless nothing else is stated in the
    contract. If both parties agree, it is possible to go up to 60 days. The payment period
    may be extended beyond 60 days only if “expressly agreed” by the creditor and the
    debtor in the contract and provided that it this not “grossly unfair to the creditor”.
  • Public-to-business: – 30-day general deadline. Parliament fought hard to ensure that
    payment can never be delayed beyond 60 days and that a special justification is necessary
    for any extension of the payment period (it needs to be “expressly agreed” and
    “objectively justified”).
  • Exemption for public entities providing health care – Member states may choose
    a deadline up to 60 days. This is because of the special nature of bodies such as public
    hospitals, which are largely funded through reimbursements under social security systems.
  • Interest rate and compensation-Parliament pushed Council to accept a statutory
    interest rate of the reference rate plus at least 8%. The creditor is entitled to obtain from
    the debtor, as a minimum, a fixed sum of €40, as compensation for recovery costs.
  • Verification period -The verification period for ascertaining that the goods or services
    comply with the contract terms is set at 30 days. This period may be extended in the
    case of particularly complex contracts, but only if expressly agreed and provided it is
    not grossly unfair to the creditor. Parliament secured an undertaking that verification
    periods may not be used as a loophole to delay payment unnecessarily.

It is likely that the Council will approve these rules in readiness for implementation into the laws of member states.

Commercial Litigator Maria Koureas-Jones said:

“The final version of the Directive should have a positive impact on the payment processes of larger businesses ensuring that the current drip feed and delays are penalised.”

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