Say goodbye to late payments

Companies may shortly be able to obtain the reimbursement of moneys due to them by public authorities more quickly. Discussions within the European Parliament on amendments proposed last year by the European Commission to the current EU law regulating late payments are under way.

Many payments in commercial transactions between businesses or between businesses and public authorities are made much later than agreed. This invariably translates into huge costs for enterprises. Indeed, the late payment of moneys due is a frequent cause of the cash flow problems suffered by a lot of firms which are on the brink of bankruptcy.

Such a practice impedes business development and could even be responsible for the bankruptcy of otherwise viable companies, particularly in the case of small or medium-sized enterprises.

The current EU directive on late payments was therefore specifically adopted in order to combat such a practice.

This law applies to all transactions conducted between undertakings or between undertakings and public authorities. It does not harmonise payment periods but creates a statutory right to interest 30 days after the date of the invoice, unless another payment period has been negotiated in the contract.

According to studies conducted by the European Commission, in some member states the public authorities are the worst culprits. The Commission has therefore proposed a number of amendments to the current law on late payments precisely in order to tackle this issue. The proposed amendments provide that public authorities will, as a rule, have to pay within 30 days or else pay interest, a compensation for recovery costs and a flat-rate compensation of five per cent of the amount due which kicks in from the first day of delay.

The same penalties do not apply in the case of business-to-business transactions, though in the case of delays suppliers will still be entitled to claim from private firms late-payment interest and a compensation for recovery costs. In accordance with the proposed amendments, even small amounts of interest may be charged and it will no longer be possible, as under the current rules, to exclude claims for interest of less than €5. The new rules are optional for businesses in the sense that they are entitled to take action but are not obliged to do so. This means that enterprises will still have the necessary flexibility to extend payment periods for the sake of good customer relations.

MEPs have questioned the rationale behind imposing heavier sanctions on public authorities than on private firms, and some parliamentarians are insisting that the penalties should be the same across the board. Changes to the amount of compensation put forward by the Commission are also being proposed by the MEPs, and clarifications as to which authorities are to be considered as "public authorities" are being sought.

These proposed amendments could serve as another means of promoting the economic recovery of European enterprises. The cash flow problems being currently faced by most companies could possibly be eased. Creditors would be provided with an adequate legal instrument which enables them to fully and effectively exercise their rights when paid late, while public administrations would be confronted with measures that effectively discourage them from delaying payment.

mariosa@vellacardona.com

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.