Commission seeks to strengthen the Late Payments legislation

As part of its recent SME Relief Package, the Commission has decided to revise the Late Payments Directive. The Directive has now been proposed as a Regulation. This means that the legislation will be directly applicable to European businesses without having to be transposed into national law.

The main aim of this legislation is to ensure that business payements are done on time and hence avoid cashflow issues, which can be especially difficult for SMEs. In the EU, under 40% of payments are made within the time allowed, and late payments contribute to a quarter of bankruptcies. Figures are even more worrying when looking specifically to the construction sector. In addition to the Directive becoming a Regulation, here are some key components of this proposal:

  • All payments are capped to 30 days (no derogation) for both public administration to business and business-to-business transactions. The 30-day period starts from the date of the receipt of the invoice, provided that the debtor has received the goods or services.
  • Effective payments to subcontractors in public procurement: there is a new provision aiming to ensure that payments are passed down the supply chain in contracts for public works, by requiring the main contractor to prove that direct subcontractors have been paid before invoicing the client. 
  • Payment of interest is made compulsory and automatic, it shall accrue until payment of the debt.

You can access this proposal in all EU languages here.