One of the perennial problems facing Maltese businesses should be eased in the coming years as the European Union has now agreed to introduce a new capping system on late payments for goods and services provided by both private and public entities.
Following long negotiations between EU member states and the European Parliament, a deal was struck on the revision of the EU’s Late Payments Directive so that debtors will be obliged to make their payments within a maximum 30 day period or face the consequences of having to pay steep interest rates on the amounts due.
The new directive will apply for business to business transactions and for payments to be made by public authorities, except in the case of healthcare, where public authorities will have a maximum of 60 days to pay their dues.
Late payments have become a problem all over Europe with many debtors abusing across the board and delaying payments in order to prevent cash-flow problems.
Malta has serious problems with late payments, particularly with regard to millions of euros in payments due by the government for medicinal provisions and supplies. As a result of this new legislation the government will have to find the necessary funds to start making its payments on time.
According to the agreement reached, which is now expected to be endorsed by a full European Parliament plenary session next month, the standard deadline for both public and private sectors to pay a bill for goods or services will now be 30 days.
Only in exceptional circumstances can the payment period be longer than 30 days and can never be delayed beyond 60 days for public authorities. A special justification is necessary for any extension of the payment period.
The new legislation will also introduce a statutory interest rate payable if a payment is not made on time. Defaulting debtors will have to pay the current interest reference rate plus eight per cent on the outstanding payment.
Specific rules have also been introduced for public entities providing healthcare. EU member states may now choose a deadline of up to 60 days due to the special nature of public hospitals, which are largely funded through reimbursements under social security systems.
The verification period for ascertaining that the goods or services comply with the contract terms is set at 30 days.
According to a recent European Payment Index survey of over 5,000 companies in the EU, European governments could provide a €65 billion stimulus to the European economy simply by paying contractors on time. According to the data gathered, just half of all invoices in Europe are paid within 30 days.
The European Payment Index survey also revealed that the public sector is less reliable than private businesses and consumers when it comes to paying suppliers, taking an average of 37 additional days to pay invoices.
European businesses are estimated to spend some €25 billion per year chasing late payments from the public and private sectors, with small and medium-sized enterprises feeling the pinch particularly acutely.