Payment period possible from 60 to 30 days: points of attention for (food) businesses

This proposal is part of the European Commission's Sustainable and Digital Europe strategy. It aims, among other things, to improve the competitiveness and business environment for European small and medium-sized enterprises (SMEs). With the future entry into force of the regulation, the current Directive 2011/7/EU on combating late payment in commercial transactions will be repealed and replaced by the new regulation. A regulation - unlike a directive - is directly applicable in EU member states.

According to the European Commission, late payment disrupts competitiveness and productivity to the extent that it increases the risk of bankruptcy unnecessarily. SMEs are particularly affected as they usually depend on these cash flows. As a root cause, the Commission points to the imbalance in bargaining power between a large client (debtor) and a smaller supplier (creditor).

From 60 to 30-day payment period

The new proposed regulation thus streamlines the current provisions and introduces a single maximum payment period of 30 days for all commercial transactions within the European market, including transactions between public authorities and businesses. There is no longer any possibility to agree on a longer period.

With the entry into force of the new regulation, this strict 30-day payment period will also apply to non-perishable agricultural products and foodstuffs for which a 60-day payment period is currently still allowed. It is therefore important that food businesses take into account this possible change in the maximum payment period and take timely measures (contractual and/or financial).

Considerations for commercial businesses

The new regulation proposes for the first time a limit for verification procedures to ascertain goods’ or services’ compliance with the contract requirements.  Such procedure of acceptance or verification is only allowed if provided for in national law where necessary due to the specific nature of the goods and services. Moreover, the maximum duration of that procedure shall not exceed 30 calendar days from the date of receipt of the goods or services by the debtor, even if such goods or services are supplied prior to the issuance of the invoice or an equivalent request for payment. In this case, the contract must describe the details of the procedure of acceptance or verification, including its duration.

Furthermore, the debtor of the goods or services must start this procedure of acceptance or verification immediately after receiving the goods or services. The payment period shall not exceed 30 calendar days after this procedure has taken place.

A final note of attention concerns the high interest rate (Euribor) + 8% in case of late payment. The proposal stipulates that the payment of interest becomes automatically due by the debtor to the creditor until the debt is paid. Therefore, unlike the current directive, under the new proposal the creditor cannot waive his right to claim interest for late payment. A contractual provision to this effect between parties (which deviates from this new rule) is also not valid.

The scope of the new regulation

Some contractual freedom is retained between parties. The parties can in fact negotiate the payment period as long as it does not exceed 30 days. However, the proposal is inconclusive on the question of the applicability of the new regulation to international transactions and intra-EU transactions, particularly with regard to the law declared applicable to the contract between parties. So, for example, when an EU-based company buys goods from a non-EU-based company. Or, for example, when two EU-based parties declare the law of a non-EU country applicable to the contract. Will the new regulation also apply to the commercial contract of these parties if the parties have opted for the law of a non-EU country in the contract?

Due to the objectives of the new regulation, its legal requirements could also apply to the contract between these parties. But it remains to be seen whether the final text of the new regulation (or, for example, a guidance document from the European Commission) will clarify this matter.

Conclusion

The European Commission's proposal for a regulation on late payment in commercial transactions will thus entail a number of changes for commercial businesses. These changes mainly concern the maximum payment period of 30 days, the interest automatically due in case of late payment and the rules and time limits applicable to verification procedures. As a (food) business, it is advisable to keep a close eye on these developments and take timely measures in the event of the new regulation coming into force. For instance, by making adjustments to current contracts with suppliers or customers.

About Ploum's International Trade, Customs and Food Practice team

The specialists in our International Trade, Customs and Food Practice team can provide you with quick and effective assistance. If you have any questions on this topic or other issues surrounding International Trade, Customs or Food Safety & Product Compliance, please contact one of our team members or contact Ferah Taptik, Marijn van Tuijl or Jikke Biermasz directly.