Amendments to the EU's Late Payment Directive aim to impose penalties on public authorities that fail to pay their suppliers within 30 days.
Public authorities should lead by example and pay their bills within the stipulated timeframe because late payments were "hampering business development", according to Maarit Nyman, from the European Commission's SME policy development unit.
Addressing a business breakfast on the proposed amendments to the directive, Ms Nyman said the changes were part of the EU's Small Business Act for SMEs and part of the measures undertaken in response to the economic crisis.
The business breakfast was organised by the Malta Business Bureau, which drew up a document about the "huge problems" caused by late payments by the government.
The bureau said some companies across sectors of the Maltese economy were facing liquidity problems and a great deal of bartering was taking place whereby building developers were exchanging property as a payment to sub-contractors.
Ms Nyman said late payments were responsible for bankruptcies of viable companies, especially if they were SMEs. She said the freedom to contract would be respected in business-to-business relations but, in cases of delay, businesses would be entitled to claim late payment interest and a compensation of recovery costs.
She said the updated directive would provide creditors with additional instruments that enabled them to fully exercise their rights when they were paid late.
The Commission is proposing that public authorities must settle within 30 days or else pay a flat rate compensation of five per cent of the amount plus interest.
The gathering heard that the pharmaceutical and the construction sectors were especially affected by late payments.
Reginald Fava, chairman of the healthcare business section of the Chamber of Commerce, Enterprise and Industry, was somewhat sceptical about whether the EU's proposed new directive would in reality force the government to change its ways regarding payments to the private sector.
"The late payment directive is another step forward in trying to resolve the issue of late payments but it is not the solution to our problem," he said.
"We are well aware of the fact that we can charge interests on late payments and we have known this since Malta joined the EU. We are not interested in interest. We want the government to pay us the €30 million to €40 million it owes us within a reasonable timeframe within not more than 90 days," he insisted.
Late payments to the pharmaceutical industry have been an ongoing saga for many years. Hefty fines are imposed on importers for the late delivery of pharmaceutical products even when it is not necessarily their fault. The fines sometimes exceed the value of the order itself, rendering importation completely unfeasible. Last year, the fines imposed reached €2 million.
Mr Fava said a 150-day timeframe was imposed by the authorities but anything beyond 90 days was "business not worth doing".
Anġlu Xuereb, chairman of the Association of Building Contractors, was also sceptical about the proposed changes. Although "a step in the right direction", the new rules were optional and did not impose anything on the authorities.
Most contractors avoided entering into litigation with their main clients, in particular the public ones, for fear of not being invited to tender for future works, he said.
One possibility was removing the optional elements and making it mandatory to impose the late payment fees, penalties and interest.