Does the EU directive on late commercial payments matter?

Trade Financing Matters welcomes a guest post from Gustave Roger, from a large European financial institution - See more at: http://spendmatters.com/tfmatters/eu-late-payment-laws-the-3-biggest-impacts-on-the-supply-chain-financier-perspective/#sthash.4ljIhClc.dpuf

Trade Financing Matters welcomes a guest post from Gustave Roger, from a large European financial institution - See more at: http://spendmatters.com/tfmatters/eu-late-payment-laws-the-3-biggest-impacts-on-the-supply-chain-financier-perspective/#sthash.4ljIhClc.dpuf

 

Trade Financing Matters welcomes a guest post from Gustave Roger, from a large European financial institution - See more at: http://spendmatters.com/tfmatters/eu-late-payment-laws-the-3-biggest-impacts-on-the-supply-chain-financier-perspective/#sthash.4ljIhClc.dpuf

Trade Financing Matters collaborated on this post with Gustave Roger, from a large European financial institution

Last week we touched on how the financier is impacted by the EU Late Payment Directive, see EU Late Payment laws impact on Financiers.

EU late Payment laws – The 3 biggest Impacts on the Supply Chain Financier perspective - See more at: http://spendmatters.com/tfmatters/#sthash.TYv6EamW.dpuf

EU late Payment laws – The 3 biggest Impacts on the Supply Chain Financier perspective - See more at: http://spendmatters.com/tfmatters/#sthash.TYv6EamW.dpuf
EU late Payment laws – The 3 biggest Impacts on

EU late Payment laws – The 3 biggest Impacts on

I think it would be good to get an update as to where certain member countries are in implementation. A number of European governments have debated the Late Payment Directive. This is an instrument that requires member states to enact its provisions in national legislation. The directive had a March 2013 deadline that all intra EU transactions must be paid within 60 days. The purpose of the directive was to protect small business from being squeezed by both large private companies and the public sector. I have heard different responses.

For example:

  • France - The Late Payment Directive has been in place in France for some time. While the provisions apply to the public sector, for business-to-business, the payment terms cannot exceed 45 days from the end of the month or 60 days from the date of issue of the invoice.  The law also states that payment terms can be longer than that provided that they are on sales of products/services to modernize the economy and have a strong seasonality.  According to a few contacts, the Directive has been largely adhered to.
  • Italy – 30 days payment terms from invoice receipt are the standard terms accepted. B2B payment can be longer but must not be unfair to the creditor.
  • Spain - Spain introduced the legislation with longer payment terms and is seeking to reduce this over time.
  • Sweden - The Swedish parliament took a decision on compulsory 30 days payment terms and default interest between corporates in Sweden and left it with the Swedish Government for execution.
  • U.K. – the legal acts passed in the UK mandate a maximum 60 days of payment term, however longer term could be authorized based on mutual agreement and if not unfair to the creditor. Beside the UK Government has been very supportive of Supply Chain Finance to ease the working capital pressure on suppliers.
  • Germany – Germany has been reluctant to transpose the directive as they argue, their domestic payment conditions are more favorable that the Directive requirement.  Reports however indicate the government may be inching closer to in-country implementation of the European Union's regulation. (This is understandable, as EU directive not transposed into national law are directly applicable in Country).

What is also critical to understand is that these regulations have a limited reach. It does not legislate on the intra EU Cross border trade. The EU directive mandates the countries to transpose the regulation into their national law. These country legislators do not have the authority to impose penalties to entities outside their borders.

The Directive, by almost all admissions among credit professionals and economists polled, is having a minimal impact on B2B credit and collections.

It was designed to put an EU-wide framework behind the enforcement of tough regulations for prompt payment to creditors. Minimal application of the Directive could be traced, perhaps, to the slow implementation by the standard-bearing economy of Germany.

According to the National Association of Credit Managers, "the directive, by almost all admissions among credit professionals and economists polled, is having a minimal impact on B2B credit and collections. Minimal application of the directive could be traced, perhaps, to the slow implementation by the standard-bearing economy of Germany."

As one company stated, “You look after your important partners, otherwise they might spend the money with our competitors. I'm not taking someone to court for $5,000 if they spend $8 million per year, unless the law says I have to and it is enforceable.”

Does the Directive only have symbolic value?  Or is this just another step towards more governmental control of the economy?  Either way, it is interesting to monitor how the different EU Governments look to implement.

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