The New Late Payments Directive is due to be transposed by 16th March 2013
One of the priority actions of the European Commission’s Communication of 26 November 2008 entitled ‘European Economic Recovery Plan’ is the reduction of administrative burdens and the promotion of entrepreneurship by, inter alia, ensuring that, as a matter of principle, invoices, particularly those owing to SMEs, for supplies and services are paid within 1 month to ease liquidity constraints.
The new directive was published on 16th February 2011. Provision is to be made for business-to-business contractual payment periods to be limited, as a general rule, to 60 calendar days. However, there may be circumstances in which undertakings require more extensive payment periods, for example when undertakings wish to grant trade credit to their customers. Specific rules are to be introduced regarding commercial transactions for the supply of goods or services by undertakings to public authorities, which should provide in particular for payment periods normally not exceeding 30 calendar days, unless otherwise expressly agreed in the contract and provided it is objectively justified in the light of the particular nature or features of the contract, and in any event not exceeding 60 calendar days.
The key amendments from the earlier Directive relate to:
1. The increase of the rate of interest to 8% over the ECB reference rate,
2. The compensation award where interest payable – fixed payment of €40 plus further compensation for legal fees, employing a debt collection agency, etc;
3. The requirement that public authorities are not permitted to delay payment beyond 60 days;
4. The publication of a list of prompt payers;
5. The restriction of all verification processes to a 30 day period; and
6. The expedited period of redress for unchallenged debts being set at 90 days.
In the SME sector and payments between undertakings, the reality is that terms and conditions are not always properly drafted into the terms of sale and supply, and furthermore a culture has developed in Ireland, particularly in the context of the recession, of parties not paying on time and holding out until debt collection proceedings are threatened or issued. With the lack of credit available to the SME sector, SMEs are using the non-payment of creditors as a form of credit to operate their own businesses and manage their cash-flows. Only time will tell of the new changes laid down by the Directive will improve the manner in which payments in commercial transactions between undertakings or between undertakings and public authorities will be made.
It is hoped that the Irish government will have learned from the experiences of the SME sector in the past few years and take on board their concerns when adopting the Directive into law here. In order to really have any impact on business here the proposed regulations must take the discretionary aspect of whether to charge interest on late payments out of the equation so that interest must be charged as a matter of law, otherwise the objective of maintaining business relationships between contracting parties will result in no interest or compensation being charged by the creditor whatsoever and the status quo continuing.
For further information on this topic, please contact a member of our team.