New Rules to Combat Payment Delays in Europe

Published on 29 January 2024 in Cash management

Aware of the consequences of payment delays on the financial stability of businesses, the European Commission is proposing a new regulation on payment delays. These new rules will only come into effect once the regulation is adopted by the European Parliament and the Council. Subsequently, they will be applicable one year after the entry into force to allow various stakeholders to organize themselves.

Issues of Payment Delays for Companies

For many years, abuses have been observed regarding bill payments. Although clients have a payment period, typically 30 days, it is not uncommon to see debtors exceed this deadline and pay their suppliers beyond the agreed-upon time. The European Commission has notably identified abusive practices in commercial transactions between small and medium-sized enterprises (SMEs) and large corporations, creating a power asymmetry that forces SMEs to accept abusive payment conditions and deadlines. These practices often jeopardize the financial health of smaller entities, leading to delayed payments to their own suppliers through a domino effect.

In general, it is estimated that companies have increased their need for financing to cover payment delays. This practice reduces the competitiveness of businesses and their investment capabilities in the face of commercial opportunities.

Key Innovations in the Proposal for Payment Delay Regulation

This new provision is proposed under the name "regulation," unlike a directive, it is directly applicable. It sets the maximum payment period at 30 days for all transactions. No legal provision can extend this maximum period, although provisions to shorten it can be defined in contracts.

To ensure the proper application of the new deadlines, the regulation makes the payment of accumulated interest and penalties automatic. The flat-rate penalty increases to €50 (or equivalent) per commercial transaction paid late, and the creditor cannot refuse this flat-rate penalty.

New Execution and Recourse Measures

The stated objective of this new regulation is to strengthen creditor protection against poor payers. Member states must implement these provisions by proposing services responsible for monitoring and ensuring the application of the rules. Authorities responsible for enforcing the rules will be empowered to receive complaints, initiate investigations, and impose effective, proportionate, and deterrent sanctions against those who do not respect payment deadlines. These measures also encourage creditors to assert their rights in case of non-compliance with the provisions by outsourcing their requests to debt recovery professionals.

Turning to Sekundi, international bebt collection network

This regulation applies to all commercial transactions within the European Union. Although it encourages companies to be more rigorous regarding bill payments, it does not guarantee that all companies will apply it or be able to do so. In this context, turning to international debt collection companies network remains a solution to ensure your cash flow.

Critiques and Potential Abuses around the New Regulation

Some concerns are raised by merchants and trade associations. Reducing payment deadlines to a maximum of 30 days could lead to an increase in working capital needs for companies. Some fear the leakage of imports to countries where payment regulations are more lenient. In conclusion, like any new obligation, this measure will require an adaptation of internal organization and accounting services, with an obligation to manage invoices on an ongoing basis, rather than at the end of the month.

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