Planned EU late payment regulation cannot be fully implemented by more than half of companies
The EU Commission's proposal for a regulation to combat late payment in commercial transactions has met with some criticism. A recent customer survey by international credit insurer Atradius also points this out. Only 38 per cent of the companies surveyed believe that they will be able to implement the planned regulation in their sector. Forty-five per cent think that they will be able to implement it to some extent and 17 per cent estimate that they will not be able to do so in their business sector. "The idea of the regulation to protect small and medium-sized companies in particular from late payments is basically a good one. However, the way the regulation has been formulated so far means that there is a risk of increasing liquidity problems and insolvencies among SMEs,’ says Frank Liebold, Country Director Germany at Atradius Kreditversicherung. More than 500 companies from 15 sectors were surveyed.
According to the EU Commission's proposal, the payment period for business-to-business (B2B) and business-to-business (G2B) transactions should generally be 30 days. In the B2B sector, an extension of up to 60 days can be contractually agreed. For goods that remain on the market for longer than 60 days and seasonal items, payment periods of up to 120 days should be possible. According to the proposal, contractual extensions are not permitted for the G2B sector; authorities would have to settle invoices within 30 days.
Numerous points of criticism of the draft regulation
According to an analysis by Atradius, the average payment term in Eastern Europe is 40 days. In Western Europe, too, payment terms are getting longer and longer. They currently average 52 days. According to the latest Atradius payment morale barometer, 57 per cent of invoices from German suppliers were unpaid on the due date.
Nevertheless, there are currently numerous criticisms of the EU Commission's proposal. Objections have been raised not only by several associations, but also by many companies themselves, which would be directly affected by the EU regulation. ‘In view of the freely negotiable contracts and payment terms between all parties across Europe, the European Parliament must find a healthy mix in its further deliberations so that the regulation is also suitable for everyday use and does not become a further burden for the German economy,’ says Frank Liebold. Another criticism is that country- and sector-specific particularities are being disregarded and that the regulation is therefore causing exactly what it actually wants to avoid: liquidity problems for companies. Furthermore, the implementation of the regulation would require renegotiations of payment terms. This would mean that European companies could be squeezed out of international competition by non-European competitors, as they can offer longer and more flexible payment terms. A 30-day or even a 60-day payment term is also not feasible in some sectors. In the construction sector, for example, where the average payment term in Western Europe is 68 days, implementation is not possible due to the extensive checks required. "Another major problem is that supplier credit, the most important financing instrument for companies, is being massively restricted. Many companies finance themselves to a considerable extent via supplier credit. Particularly in the current economic situation, in which banks are becoming more cautious in their lending, companies are probably unable to make up for this lack of financing and may therefore find themselves in financial difficulties," explains Frank Liebold.
56.7 per cent of the companies surveyed expect the planned regulation to reduce payment delays. 51.3 per cent expect liquidity to improve, while 11.7 per cent expect liquidity to deteriorate. ‘The planned regulation should be an improvement for SMEs in particular and should not contain any hidden disadvantages,’ emphasises Frank Liebold.
For the survey, which was conducted in May of this year, companies from sectors including automotive, construction and building materials, chemicals, services, electronics, finance, IT/software, consumer goods, agriculture, food, mechanical engineering, metal, paper, textiles and transport were surveyed. The turnover of the companies ranges from less than five million to more than one billion euros. The number of employees in the companies surveyed ranged from less than 100 to more than 1,500.
