ITFA Late Payment Regulation Advocacy Work

Dear ITFA member,
 
As you are aware, ITFA has been in talks with several stakeholders in the European Parliament and Commission to advise and inform them about the proposed revision of the EU Late Payment Directive (2011/7/EU) (ref. Ares (2023) 219034 of 12th January 2023). On Tuesday, 24.04.24, the European Parliament adopted its report on the revision of the Late Payment Directive with 459 in favour, 96 against and 54 abstentions.
 
In summary that means the compromise on Art. 3 Payment periods was adopted with an additional paragraph 4(a) which urges Member States to introduce rules to improve public authorities’ payment practices. That means that the EP would set payment periods of all commercial transactions at 30 days (or 60 if expressly agreed by both parties). The only foreseen derogation would be for ‘slow moving’ and ‘seasonal’ goods where the payment period can be extended to 120 calendar days. Another new element was to exclude transactions made in relation to book production and sales from the scope of the Regulation.
 
Please find a detailed summary hereafter:
 
Scope:
 

• Regulation to apply to all commercial transactions. In contrast to the Commission proposal, the EP includes insurance contract obligations into the scope of the regulation.

 
Payment period:
 

• The payment period for all commercial transactions is 30 days or 60 days if expressly agreed by both parties.
• The payment period may be extended to 120 days for ‘slow moving’ and ‘seasonal’ goods. Seasonal goods are defined as goods where demand increases significantly during a certain season of the year and slow rotation goods would be defined as goods in the retailer’s possession from supply from the manufacturer or wholesaler to retail sale for more than 60 days on average. Both terms shall be specified through technical guidance provided by the European Commission before the application date of the Regulation.
• Recital 11 mentions that undertakings should enjoy additional flexibility and maintain the possibility to negotiate a longer payment period (freedom of contract) when it is beneficial to both debtor and creditor. This paragraph seems to, however, address the possibility for longer payment periods for the aforementioned slow moving and seasonal goods. An additional Recital 18a also stresses that contractual freedom is upheld with this Regulation and that contracting parties are free to choose the type of contracts and modalities and the contractual relations.
• In Recital 23 the EP notes for slow rotation goods that retention of title can be used by sellers to provide extended credit as for example in consignment sales.

 
Interest for late payment:
 

• Creditors shall receive interest for late payments. The amount is due automatically (under certain conditions) and no reminder from the creditor to the debtor is needed.
• Diverting from the original proposal, the EP wants that debtors cannot waive their right to obtain interest only when the debtor is a public authority or a large undertaking.

 
Enforcement:
 

• Member States to designate enforcement authorities and provide sufficient capacities. EAs shall be independent from other public authorities.
• Commission gets mandate to ensure cooperation between EAs and to check whether EAs were effectively granted the powers under the Regulation which include investigation powers, imposition of fines, etc.

 
Reporting:
 

• EP introduces new Art. 16a on reporting obligations. It states that contracting authorities need to report yearly on payment practices, inter alia on the average time to pay an invoice.
• EP wants the Commission to set up a European Observatory of late payments (chaired by the Commission) to monitor payment practices  and to identify harmful and best practices.

 
Other:
 

• Contractual terms that shall be null and void and prohibited include also limiting rights of creditor to make assignments of the credit to third parties for financing services purposes and the assignment of receivables to relevant FIs.
• EP introduces explicit provision in Art. 16 that parties may negotiate to reach amicable settlements regarding debts. Member States may designate commerce chambers as bodies for alternative dispute resolution.
• Member States to ensure that SMEs have access to factoring and similar financial services that tackle late payments (Art. 17 (2). SMEs awareness of these services needs to be increased.

 
The Regulation shall apply 18 months after its entry into force and after 30 months when micro-undertakings are the debtor.
 
This report is the European Parliament’s negotiating position vis-à-vis the Council in trilogues. The trilogues would be expected to start towards the end of 2024, when the new European Parliament takes office after the election and the Council has agreed on its General Approach on this file.
 
ITFA will now focus its advocacy efforts on discussions on the members of the Council, mainly to present its core concerns with this Regulation:
 

• There is no clear distinction between abusive late payment and negotiated commercial payment terms
• The regulation would interfere with the liberty to contract
• There is no measure to help SMEs to enforce these shortened payment terms
• Shortened commercial payment terms might lead to an increase of abusive late payment
• There are other more efficient solutions to help SMEs to reduce payment terms: Supply Chain Finance, Factoring, Digital Negotiable Instruments…
• There might be a negative impact on the competitivity of the European economy in general
• Inflationary pressure could be a further unwanted consequence as corporates would have to fall back to lending which would increase production cost

 
The European Parliament adopted to a large extent the report of the Internal Market Consumer Protection Committee (IMCO). IMCO report is available here and the text the European Parliament adopted yesterday, is available here.
 
The ITFA Board will be available to take comments and contributions from its members on this topic.