The European Commission is proposing to pay invoices within 30 days

A new proposal by the European Commission is looking to introduce measures to combat late payment, focusing on tackling late payment of invoices or recurrent non-payment situations. The regulation has revised the current directive that has been in force since 2011 to bring fairness to commercial transactions at a European level, strengthen the resilience of small to medium-sized enterprises (SMEs) and improve entrepreneurs' financial literacy.

Main innovations of the proposed regulation

The European Union has introduced an initiative regarding the payment of commercial transactions. The proposal mandates that all invoices must be paid within 30 days, with Member States being warned that penalties and fines will be imposed on businesses that fail to comply.

The new proposal limits the acceptance or verification procedures for identifying goods and services. These procedures will only be allowed in specific cases when their use is essential due to the unique nature of the contract. Additionally, the proposal outlines that such procedures may not take longer than 30 days to complete.

The recently introduced regulation aims to enhance the protection of creditors by implementing new measures. One of the main proposals is to make interest payments automatic and obligatory for creditors until the entire debt is paid off. This would mean that the creditor would no longer be responsible for chasing interest recovery, as that responsibility would be transferred to the debtor in the event of late payment.

The proposed regulation includes several provisions invalidating contractual clauses requiring payment periods longer than 30 days. Additionally, clauses that limit or exclude the creditor's right to claim interest for late payment or compensation for collection management costs will be declared null and void. The regulation also invalidates clauses that delay the acceptance or verification process beyond 30 days and deliberately postpone the invoice dispatch to delay payment.

Transposition into national law

The Commission has proposed replacing the existing directive with a regulation that can be directly applied to Member States. This move aims to create a uniform set of rules across the European Union, benefitting businesses that engage in cross-border trade. The proposed regulation will allow Member States some degree of leeway in certain areas, such as the regulation of enforcement bodies, alternative dispute resolution mechanisms, and the provision of credit control and digital financial literacy training.

Transposition and entry into force

After the European Parliament and the Council have adopted the new rule, it will come into effect one year after the regulation entered into force. This means that the day after the regulation is published in the Official Journal of the European Union, the relevant actors, such as public authorities and companies, will have ample time to take the necessary measures to comply.

The regulation mandates that any commercial transactions conducted after its effective date will be governed by its provisions, regardless of whether the underlying contract was agreed upon before that date.

Osborne Clarke comment

The newly proposed regulation encourages businesses to act against the pressing issue of late payment in European commercial transactions. The regulation has been carefully crafted to benefit businesses, especially SMEs, by establishing a clear and concise framework that eliminates any ambiguity in the current legislation. The onus will be now on businesses to ensure compliance with the new provisions. As a result, the commercial sector in Europe will have to adapt to the new rules and regulations.