May 2018

ECMA issues call to action to the EU to combat late payments

The entire European economy is negatively affected by late payment. To protect European businesses, particularly SMEs, against late payment, the EU adopted Directive 2011/7/EU on combating late payment in commercial transactions in February 2011 (Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (hereafter ‘the Directive')). On 28 August 2016 the Commission published a report of the Commission on the implementation of the Directive (hereafter ‘the report').

Objectives Late Payment Directive
The specific objectives of the Directive are:
- To provide creditors with timely payments and measures that enable them to fully and effectively exercise their rights when paid late
- To confront debtors with strict measures that discourage them from paying late or from establishing excessively long contractual payment terms

The Directive also pursues the following general objectives:
- To facilitate the functioning of the internal market by streamlining payment practices across the EU
- To develop a legal and business environment supportive of timely payments in commercial transactions in order to facilitate access to finance for SMEs

Late Payment: Part of our Business?
ECMA has noticed that the terms of payment in the market are still increasing in spite of the EU Late Payment Directive and specific national measures. This is being supported by the report, which stated that: ‘Approximately half of all creditors do not exercise their rights to claim late payment interest, compensation and recovery costs as provided for by the Directive for fear of damaging their commercial relationships. The external evaluation also revealed that many SMEs continue to accept long payment terms imposed by larger companies for the same reason. This is an inherent aspect of business culture brought about by the different position of companies in the supply chain, their size and degree of dependency on each other, as well as other factors such as the market sector specificities.'

Some customers have also proven to be able to bypass the sometimes more strict national measures, and have been able to enforce payment terms on their suppliers exceeding to 180 days.

The report acknowledges that: ‘Because the Directive maintains a certain amount of flexibility in business to business transactions, this is being exploited in a number of cases by larger companies that take advantage of their stronger market position by dictating often unfair contractual terms to smaller suppliers. Furthermore, (...), in the event of late payment smaller companies do not exercise their rights for fear of damaging the commercial relationship.'

The report also mentions that: ‘The evaluation indicated that stakeholders need clarity on how to interpret several key concepts of the Directive such as "grossly unfair", "expressly", and "objectively justified in the light of the particular nature or features of the contract." The starting point in the calculation of payment periods was also considered unclear.'

With the foreseen rise of interest rates this situation cannot be expected to continue. Your company and our industry as a whole are being seriously threatened by the (excessive) payment terms imposed on our industry by some customers.

Therefore ECMA has decided to take the following actions:
To actively inform our members about the Late Payment Directive. Please find the ECMA Fact Sheet on the Late Payment Directive below.  To make an inventory of the specific legal situation at Member State level together with the national associations.

Please find the Transposition Table below.
To send an official letter to the European Commission to call on the responsible commissioner to take action against the (excessive) payment terms which are threatening our industry.

In case you would like to know more about the Late Payment Directive, please contact the ECMA Secretariat.