The European Commission is reportedly set to scrap a controversial overhaul of EU late payment rules after a lack of support from several EU member states.
The Commission proposed in September last year to limit all payment terms to a maximum of 30 days, prompting warnings from trade bodies that the reforms could make it unviable for banks to support supply chain finance facilities and increase costs for SMEs.
An amended version of the text was adopted by the European Parliament in April, but the proposals were met with resistance by around half of EU member states, in effect ruling out the possibility of European Council approval.
As a result, the EU late payment reforms will now be withdrawn by the European Commission, sources familiar with the matter have confirmed.
EU Late payment proposal
Spokesperson Johanna Bernsel says the Commission “stands behind its proposal for stricter rules to combat late payments” and continues to believe a new payment framework is needed for commercial transactions.
“Late payments are a major problem for Europe’s SMEs and a cause of many bankruptcies among small companies. This is not acceptable,” she tells Global Trade Review (GTR).
“The Commission is attentive to concerns expressed by certain stakeholders and will bear these in mind while playing its role to facilitate a final agreement between the co-legislators in due course.”
EU Late payment is considered a serious and growing problem for SMEs. A survey published by Taulia in March found that 51% of companies polled are typically paid after the due date on their invoice – up from 36% just two years earlier.
This clearly indicates a growing problem of unpaid invoices that have not been paid within the required terms.
However, industry groups raised several concerns about the nature of the Commission’s proposed text.
The financial services industry warned banks would no longer make a reasonable return from funding supply chain finance programmes if payment terms were restricted to 30 days.
Groups said that would damage a rapidly growing industry and potentially force businesses to seek more costly alternatives elsewhere. It would also mean buyers that borrow elsewhere have more debt visible on their balance sheets, factoring industry group FCI said.
Retail trade association EuroCommerce previously argued that allowing buyers and suppliers to negotiate payment terms is often a “win-win situation”, particularly where buyers – or where both parties – are SMEs.
Sources confirm that business group concerns, particularly SME representatives, played a significant part in EU member states’ reluctance to rubber-stamp the reforms. Some countries also feared the overhaul would clash with existing domestic legal frameworks.
When contacted by GTR, a spokesperson for the International Credit Insurance & Surety Association (ICISA) welcomed the Commission’s decision.
“The withdrawal of the proposals is a positive step and shows that the evidence that ICISA and others have put forward about negative consequences have had a positive impact,” they say.
“Late payment continues to be an issue, but this will hopefully give everyone an opportunity to work on this topic and find a solution that addresses the real issues that cause late payment.”
ICISA previously said it supports added protection for SMEs, but said the proposed regulation “is very broad-brush and could have a number of unintended consequences”.
Sean Edwards, chair of the International Trade and Forfaiting Association (ITFA), says he is “not surprised that the current proposal has been withdrawn”.
“From conversations ITFA had with a number of member state delegations in the Council, the strength of the opposition was clear,” he tells GTR.
“Importantly, they picked up on the point that we had been emphasising, namely that the current draft, if implemented, would suck liquidity out of the supply chain and endanger not just SMEs but the wider European economy.”
