11/10/2010

Shortening payment deadlines: making life easier for SMEs

By Katarzyna Klaus, Polish Press Adviser

Late payments are considered one of the main reasons for companies’ financial problems. With Small and Medium Enterprises (SMEs) representing a huge majority of European businesses, their problems affect the proper functioning of the Internal Market. Liquidity difficulties or bankruptcies of one company damage an entire supply chain of a particular sector.

According to the European Payment Index, in 2009, payments in business to business (B2B) transactions were made on average in 57 days and between business and public administrations within 67 at the latest. However, in some Member States, the invoices are paid much later. European businesses spend an estimated €25 billion per year chasing late payments from the public and private sectors.


Revising the 2000 Late Payment Directive

In June 2000 the European Parliament and Council agreed on a Late Payment Directive, setting out new rules to combat late payments in commercial transactions, which are often a major obstacle in the free movement of goods and services, can distort competition and make it extremely difficult for SMEs especially to manage their cash flow. The same institutions have now worked out a compromise revision of the Directive, which will be put to the vote during the October plenary session of the European Parliament.

The revised Directive sets a general 30-day deadline for invoice payment, for both public and private sectors. Only in exceptional cases can the payment deadline be prolonged up to 60 days. MEPs ensured that public authorities will have a maximum of two months to pay their suppliers. This is important given the amount of money spent in public procurement in the EU each year.

The recast Directive was proposed within the framework of the Small Business Act (SBA) which aims to improve conditions in which Small and Medium Enterprises operate.


The EPP Group position

"Late payments in commercial transactions lead to serious problems for many companies, especially SMEs, putting their liquidity and sometimes existence at stake. I believe that the changes introduced by the EPP Group in the Directive will improve the payment behaviour of public authorities, but also of businesses, by shortening the payment periods and making it easier to claim interests due to the introduction of compensation for recovery costs," said EPP Group Spokeswoman Małgorzata Handzlik MEP.


Timetable

Once the European Parliament adopts the revisions to the Directive in October and once it is published in the Official Journal, Member States will have two years to transpose the new law. However, because it is in the best interests of the Internal Market and national markets, EU countries should fast-track the implementation of the Late Payment Directive.