EC’s new late payment directive grossly overlooks the buyer

The EC’s latest directive on late payments will leave buyers feeling rather neglected

Author: Rita Lobo
February 14, 2014
The European Commission's updated directive on late payments is geared towards protecting SMEs, and woefully overlooks the buyer
The European Commission’s updated directive on late payments is geared towards protecting SMEs, and woefully overlooks the buyer

After a long consultation period, the European Commission has finally updated its directive on late payments. Though the document came into force in May last year, EC lawyers and economists in charge of the document are still doing the rounds, visiting European capitals to discuss the document with local business leaders and the press.

It is a lengthy, comprehensive document that builds on some of the loopholes left in the preceding directive published in 2000. In it the EC defines the acceptable time a company or a public office has to make a payment for goods and services received. It also details penalties, fines and costs that a buyer might accrue if it fails to make timely payments, and how the courts in each country can deal with the issue, if it comes to that. The directive offers valuable guidance but encourages member states to adapt the code to fit their own needs.

[The Late Payment Information Campaign] is suitably dramatic

The slogan the Late Payment Information Campaign has chosen to advertise its conference and efforts is ‘Time for Change’. It is suitably dramatic. According to the campaign’s literature, late payments can cause ‘companies [to] go bankrupt waiting to be paid. Jobs are lost. Dreams die.’

Small and medium companies are the worst hit. It is often the case that they have neither the time nor the resources to chase up late payments, and they are often the ones that are the most susceptible to the harms lateness can cause.

And while the EC is absolutely right to try and mitigate the damage late payments can cause to businesses, there was a woeful lack of provision to protect buyers’ rights. The onus of the new directive is entirely on companies collecting late payments, and there is very little room for buyers to protect themselves.

If the EC is so adamant that late payments kill small businesses – and they do – they need to be at least as clear that slapping enormous fines and compensation charges further delay payments.  A minor but significant change from the previous directive is that companies can now charge interest and collect compensation costs on delayed payments worth less €5. It means that a small business can be burdened with hundred of euros of additional costs for a charge worth less than the cost of an employee’s lunch.

During the presentation, constant allusions were made to the European crisis and how it has indeed caused companies to delay – and possibly miss – more payments. But surely if it is an issue for the seller, unpredictable economic conditions must also be an issue for the buyer. Though the EC is right to issue a directive in order to protect businesses, it must be more inclusive than what it is right now.

Negotiation must be at the heart of late payment collections in order to protect the integrity of the supply chain, otherwise the balance will remain tipped in favour of those with resources to prosecute, and sadly, that will never be the small businesses owner.