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Proposal for a Regulation on combating late payment in commercial transactions

In September 2023, the EU Commission published a relief package to promote the competitiveness and resilience of small and medium-sized enterprises (SMEs). One piece of the package is the Proposal for a Regulation on combating late payment in commercial transactions, which is intended to replace the existing Late Payment Directive. The BDI sees a need for improvement.

The proposed regulation on combating late payment, which the EU Commission presented as part of the SME relief package in September 2023, is intended to harmonise the previous provisions of the Late Payment Directive, intensify them, and clarify relevant terms. As the current Directive, the proposed Regulation applies to both payments made in transactions between undertakings or between undertakings and public authorities.

The key points of the proposed regulation

Essentially, the proposal contains the following changes compared to the Late Payment Directive:

  • In order to harmonise the different national laws of the Member States in the internal market of the EU, an EU Regulation is to regulate the relevant rules.
  • Payment periods: Article 3 of the proposed regulation provides for an upper limit of 30 days for contractually agreed payment periods as well as acceptance and verification procedures. Previously, the upper limit was 60 days. Exceptions will no longer be possible in future.
  • Interests for late payment is automatically due without the need for a reminder (Article 5).
  • Standardisation of the level of default interest to eight percentage points above the base rate (Article 6).
  • Automatic flat-fee compensation of 50 euros as recovery costs for each individual transaction (Article 8).
  • For public works contracts: The obligation of contractors to provide evidence to contracting authorities that they have paid timely their direct subcontractors (Article 4).
  • Listing of contractual terms and practices that are null and void (Article 9.1) and deletion of the previous term "grossly unfair" in Article 7 of the current Late Payment Directive.
  • Establishing the right of organisations officially recognised as representing creditors or with a legitimate interest in representing undertakings to take actions before the courts (Article 9.3).
  • Introduction of new enforcement authorities and powers of those enforcement authorities (Articles 13 and 14).

The BDI position

In principle, the BDI supports the aim of combating late payment in commercial transactions and welcomes the idea of harmonising EU rules by means of a regulation. However, many provisions of the draft regulation noticeably restrict the contractual freedom of companies in the internal market. We therefore make the following suggestions for improvement to the parties involved:

  • Individual payment periods of more than 30 days must remain possible. 
  • The scope of application must be limited to business relationships with SMEs.
  • The civil law systematics on default interest and the concept of reminders and the assertion of default must be kept.
  • The special provisions for the public building sector should be removed.
  • The concept of "grossly unfair" in Article 7 of the current Late Payment Directive must be kept and concretised. This concept allows a better approach of individual cases than a list of prohibitions.
  • There is no need for new and additional enforcement authorities.  The existing legal protection and enforcement options under private law have proven to be sufficient.
  • The same applies to the right to bring an association action. There are already sufficient possibilities under the rule of law in the form of reminder procedures and civil law actions, which in our view are appropriate and sufficient.

Next steps

The Committee on the Internal Market and Consumer Protection (IMCO) is the lead committee in the European Parliament. On 20 November 2023, rapporteur Roza Thun und Hohenstein (Renew Europe, Poland) published her draft report. This report provides for further tightening the Commission's proposal, including an increase in compensation for recovery costs, an extension of the catalogue of nullities in Article 9, the strengthening of the European Commission's control powers and extended reporting obligations for large companies.

The deadline for submitting amendments to the draft report was 12 December 2023. A debate on the amendments and compromise amendments in IMCO is planned for 24/25 January 2024. The final IMCO vote on the draft report is scheduled to take place on 22 February 2024. The EP plenary is scheduled to vote in March 2024.