The European Commission is at work on a revision of its Late Payment Directive. It has put out a call for evidence and opened up a public consultation. A third step, the convening of an SME panel, is underway.
The directive in force dates to February 2011 and is intended to curb late payment in commercial transactions, but government Covid policies – e.g., lockdowns, the mandated divide between essential and non-essential businesses – have shined a light on the vulnerabilities of small and medium-sized enterprises (SMEs). Also, as the EU acknowledges, administrative and financial burdens are “particularly acute when businesses and customers are in different EU countries,” and this, in turn, obstructs cross-border trade – part of the EU’s raison d’être.
And, finally, payments only become tardier when “credit lines and bank loans become less available” – as is the case right now.
The outlook
In March, Luis de Guindos told Business Post that the European Central Bank (ECB), of which he is vice president, believed the turmoil at Credit Suisse and multiple U.S. banks would “lead to an additional tightening of credit standards in the euro area.”
Meanwhile, the U.S. Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices for July found that banks were “expecting to further tighten standards on all loan categories” for the second half of 2023. This tightening was already happening in April when Reuters reported that Jeffrey Haley, CEO of American National Bank and Trust Company, had seen a credit crunch coming at the start of 2023.
“Banks most frequently cited,” reads the Fed’s survey, “a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”
As for the turmoil across the Atlantic, the U.S. has this year, by Forbes’s estimate, seen the second-, third- and fourth-largest bank failures in its history, with First Republic Bank ($229bn in assets), Silicon Valley Bank ($209bn) and Signature Bank ($110bn), respectively.
The changes
The impetus to revise the late-payment directive has come from lobbying groups, chief among them, according to Diffusion Sport, Spain’s Multisectoral Platform against Late Payments (PMcM). This group – along with Pimec, a Catalonian group representing SMEs – aired it concerns in July with representatives of the European Commission and the European Parliament at a meeting of the European and Social Economic Committee, whose purpose is to give such groups a “formal say” in EU legislative proposals. The PMcM has, in addition, been “providing documentation and recommendations” to members of the European Commission over the past few months.
And now, again, according to Diffusion Sport, the PMcM has seen the draft that the European Commission will be submitting to Parliament. A crucial change in it, apparently, concerns the payment window, which is to shrink by half – from 60 to 30 days. Others are to render compensatory fees and interest legally automatic on delinquent debtors and to make it easier to seek mediation rather than petition the courts.
In the summation of the business network CSR Europe, the European Commission has “rolled out a comprehensive SME Relief Package,” combining “financial assistance, regulatory flexibility, and business support programs” through “targeted grants, low-interest loans, and liquidity provisions.” It is “embedding prompt payment behavior into law; fostering the use of modern digital payment tools to facilitate prompt payments, and strengthening prevention and enforcement of these rules across all industrial ecosystems.”
