95/198/EC: Commission Recommendation of 12 May 1995 on payment periods in commercial transactions
Date: 1995-05-12
Institutions: European Commission
Subjects: VAT, contract, financial transaction, payment, public contract, small and medium-sized enterprises













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31995H0198

95/198/EC: Commission Recommendation of 12 May 1995 on payment periods in commercial transactions  


Official Journal L 127 , 10/06/1995 P. 0019 - 0022 





COMMISSION RECOMMENDATION of 12 May 1995 on  payment periods in commercial transactions (*) (Text with EEA relevance) (95/198/EC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Whereas on 21 April 1993 the European Parliament adopted a Resolution on the Commission's  communications to the Council 'Towards a European subcontracting market` and 'SME participation in  public procurement contracts in the Community` (1), calling on the Commission to make specific  proposals on late payments; Whereas on 30 June 1993 the Economic and Social Committee adopted an Opinion  (2) on the  'Commission staff working paper on the problem of the time taken to make payments in commercial  transactions` (3); Whereas in its White Paper on Growth, Competitiveness and Employment  (4) the Commission announced  an initiative concerning payment periods; Whereas on 25 May 1994 the Commission adopted a Communication on the implementation of an  integrated programme in favour of SMEs and the craft sector  (5); Whereas the European Parliament in its Resolution on the Integrated Programme emphasized that the  Commission should forward porposals to deal with the problem of late payment  (6); Whereas heavy administrative and financial burdens are placed on businesses, particularly small and  medium-sized ones, as a result of the length of payment periods in commercial transactions; whereas  overdue payments are a danger to the financial balance and even the survival of businesses; Whereas there has been a deterioration in payment practices in the majority of the countries of the  Community in recent years; whereas this deterioration has not been caused by economic factors  alone, but also reflects a structural trend in business relations; whereas the intensification of  trade and competition in the internal market could well bring about a general lengthening of  payment periods in the Community; Whereas the differences between the payment rules and practices in the Member States consitute an  obstacle to the proper functioning of the internal market; Whereas, without undermining contractual freedom as regards the determination of payment periods,  it is advisable to promote greater transparency of the time limits applicable between contracting  parties and to encourage adherence to the agreed deadlines; Whereas better information and training for businesses, in particular small and medium-sized ones,  in the matter of payment periods would help improve business practices in this area; Whereas the penalty system for overdue payments in the Member States must be such as both to  discourage late payment and fully compensate the creditors for the various costs incurred; Whereas a penalty system can be dissuasive only if it is accompanied by redress procedures which  are rapid, effective and inexpensive for the creditor; Whereas it is necessary to take supplementary measures in order to improve adherence to payment  periods in cross-border transactions; Whereas public authorities and public-law enterprises handle a considerable volume of payments to  businesses; whereas strict payment discipline on the part of these authorities would have a  spill-over effect on the economy as a whole; whereas current practices must be improved if public  procurement contracts really are to be opened up to businesses, particularly small and medium-sized  ones, HEREBY RECOMMENDS: Article 1 Objectives Member States are requested to take the necessary legal  and practical steps to ensure adherence to contractual payment periods in commercial transactions  and to improve payment periods for public procurement contracts. In particular, they are requested to take the most appropriate steps, to supplement their legal and  administrative systems, in order to: -  reinforce transparency in contractual relations, improve training and information in businesses  and mitigate the fiscal effects of late payments, -  ensure adequate compensation for late payments, -  guarantee appropriate redress procedures, -  eliminate difficulties specific to cross-border trade, -  improve payment for public procurement contracts. Article 2 Transparency, information and training, VAT 1.  Greater transparency of the payment  periods applicable in commercial transactions, should be encouraged. To this end, the Member States  are requested to: (a)  take the appropriate steps to encourage clear indication, in commercial contracts, of the  period applicable and the date at which the payment falls due, by, for example, a statement on the  invoice. Where there is no written contract or where the payment period has not been clearly  indicated on the invoice, they shall provide for a simple and clear rule which determines both the  payment period and the payment deadline legally applicable to the contract; (b)  encourage indication, on commercial documents, of any discounts and charges applicable to  early or late payment; (c)  encourage indication in commercial contracts of a period, following the receipt of goods or  services, during which the recipient may raise any objections regarding the quality or quantity  received. The legislation should contain a subsidiary rule which applies in the absence of any  provision in the contract; (d)  stipulate that notices of public procurement contracts or bills of quantities should contain  precise details of the payment periods and deadlines practised by the awarding authorities. 2.  Member States are requested to encourage public and private initiatives, including those of  professional organizations, designed to improve the information and training offered to businesses,  particularly small and medium-sized ones, in the management of payment periods. Such schemes may  involve, in particular: (a)  providing advice and legal assistance in the drafting of commercial documents and contracts; (b)  providing information and training on the most suitable payment rules and practices for  particular sectors, regions and countries, and on internal and external debt-recovery procedures; (c)  developing practical means of cash-flow management, in particular computing facilities, and  promotion electronic data interchange (EDI) within SMEs; (d)  recourse to debt-recovery techniques such as factoring. 3.  In view of the specific needs of SMEs and in particular the effects on their liquidity, which  are liable to arise from late payments, the Member States are resquested to provide that they enjoy  the most favourable payment periods under Council Directive 77/388/EEC (Sixth Directive on VAT)   (1). This concerns the possibility of: (a)  deferring payment of VAT until the corresponding invoice has been settled, for small  businesses at least; (b)  permitting small businesses to submit their VAT returns after longer periods. Article 3 Compensation for late payment Conditions should be created whereby the creditor can  be suitably compensated for damages incurred through late payment by the debtor. To this end,  Member States are requested to: (a)  recognize the right of creditors to interest on arrears as soon as the contractual or  statutory period has been exceeded; (b)  set a rate of interest for late payments, otherwise applicable in the absence of specific  provisions in the contract, at a level which is sufficiently dissuasive for bad payers; (c)  recognize, in addition to the right to interest on arrears, a right to other compensation for  damage incurred by the creditor through late payment. This compensation should cover, in  particular, the legal and administrative costs of recovery. Article 4 Redress procedures Steps should be taken to ensure that creditors to whom payment is  overdue have access to rapid, efficient and inexpensive redress procedures enabling them to obtain  payment and compensation for damages. To this end, Member States are requested to: (a)  encourage the introduction of procedures to settle claims without recourse to legal  proceedings, with a view to the rapid, efficient and inexpensive settlement of payment disputes; (b)  improve the effectiveness of simplified legal procedures for the settlement of claims in  respect of limited sums. These procedures should provide for simple, low-cost methods for taking  legal action. The thresholds for the applicaton of these procedures should be set at a level which  covers a considerable number of business transactions. There should be efficient conditions for  enforcing rulings made under these simplified procedures; (c)  improve the effectiveness of accelarated recovery procedures. These procedures should allow,  with fewer formalities and shorter time limits, the granting of a writ of execution when a debt is  not contested. These procedures should take place quickly, with a minimum of formalities and  financial cost to the creditor, and apply irrespective of the size of the claim. Article 5 Cross-border trade The difficulties which are specific to cross-border trade in  respect of payment should be eliminated. To this end, Member States are requested to: (a)  encourage better information and training in businesses on the management of payment periods  in cross-border trade; (b)  facilitate recovery procedures for cross-border debts which are not in dispute. In particular,  it should be made easier to obtain a writ of execution for such debts; (c)  take all necessary measures to facilitate and speed up the resolution of law suits and the  execution of judgments in the case of late cross-border payments. Article 6 Public procurement contracts Steps must be taken to ensure that public authorities  and public-law enterprises - the latter as defined in Council Directive 93/38/EEC  (1) - are  disciplined in the matter of payment. To this end, Member States are requested to: (a)  take steps to ensure that all the authorities concerned are aware of the consequences of late  payment on the financial well-being of economic operators; (b)  adhere to a period of 60 days for payments for public procurement contracts, without prejudice  to any shorter times currently in effect. Member States are requested to examine the extent to  which they can reduce the time it takes for public authorities to pay companies, and the extent to  which they can simplify the relevant existing rules; (c)  establish precise administrative procedures, including time limits, to ensure that public  payments are made as rapidly as possible. In particular, time limits should be fixed for the  completion of pre-payment administrative formalities, such as public works reception procedures; (d)  carry out regular checks on the payment periods of all authorities at all levels, the results  to be made available in an official publication; (e)  provide for payment - at the same time as the face value of the invoice is paid - of interest  on invoices not paid by the date specified in the contract. Appropriate checks should be made to  ensure that the public authorities adhere to this principle; (f)  make provision for sub-contractors to be paid within reasonable time limits under public  procurement contracts. Article 7 Report To enable the Commission to evaluate what progress has been made, Member  States are requested to forward a report to the Commission on action taken in respect of the  various elements of this Recommendation before 31 December 1997. Article 8 Addressees This Recommendation is addressed to the Member States. Done at Brussels, 12 May 1995. For the Commission Christos PAPOUTSIS Member of the Commission