Commission staff working document - Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on combating late payment in commercial transactions (recast) - Impact assessment {COM(2009) 126 final} {SEC(2009 316}
Date: 2009-03-18
Institutions: European Commission
Subjects: administrative formalities, competitiveness, entrepreneurship, impact study, payment, public administration, small and medium-sized enterprises, trading operation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.4.2009 
SEC(2009) 315 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on combating late payment in commercial transactions (recast) 

Impact assessment  

{COM(2009) 126 final} 
{SEC(2009 316}

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

Procedural issues and consultation of interested parties .............................................. 5 

Problem definition........................................................................................................ 5 

The problem and its size .............................................................................................. 5 

The causes of the problem............................................................................................ 9 

2.2.1.  The market structure .................................................................................................... 9 

2.2.2.  The business cycle,..................................................................................................... 10 

2.2.3.  Access to finance and budgetary constraints ............................................................. 10 

2.2.4.  The internal organisation of creditors and debtors,.................................................... 11 

2.2.5.  The absence of effective and efficient remedies ........................................................ 12 

2.3. 

The effects of the problem ......................................................................................... 13 

2.3.1.  Late payment represents a significant cost to creditor enterprises............................. 13 

2.3.2.  Debtor companies and public authorities paying late get free trade credit ................ 15 

2.3.3.  Late payments have a negative impact on intra-community trade............................. 15 

2.4. 

2.5. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

How is the problem likely to develop? ...................................................................... 17 

Legal basis.................................................................................................................. 17 

Objectives................................................................................................................... 18 

General objectives...................................................................................................... 18 

Specific objectives ..................................................................................................... 19 

Operational objectives................................................................................................ 19 

Policy options............................................................................................................. 19 

Overview of policy options - Subsidiarity and proportionality ................................. 19 

Baseline option: no policy change ............................................................................. 21 

Non-legislative options .............................................................................................. 21 

4.3.1.  Option 2a: The organisation of awareness raising activities targeted at businesses .. 21 

4.3.2.  Option 2b: The organisation of awareness-raising activities targeted at organisations 

representing SMEs ..................................................................................................... 22 

4.3.3.  Option 2c: Publication of information on bad debtors............................................... 22 

4.4. 

Legislative options ..................................................................................................... 22 

4.4.1.  Option 3a: Full harmonisation of payment periods.................................................... 22 

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4.4.2.  Option 3b: increasing the "margin” interest rate........................................................ 22 

4.4.3.  Option 3c: the abolition of the threshold of €5 .......................................................... 23 

4.4.4.  Option 3d: the introduction of a “Late Payment Fee”................................................ 23 

4.4.5.  Option 3e: the introduction of a “Late Payment Compensation” .............................. 23 

4.4.6.  Option 3f: Strengthen the role of representative organisations.................................. 23 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

Analysis of impacts .................................................................................................... 24 

Option 1: baseline option ........................................................................................... 25 

Option 2a (non-legislative): The organisation of awareness raising activities targeted 
at businesses ............................................................................................................... 25 

Option 2b (non-legislative): The organisation of awareness raising activities targeted 
at organisations representing SMEs ........................................................................... 26 

Option 2c (non-legislative): Publication of information on bad debtors ................... 26 

Option 3a (legislative): Harmonisation of payment periods ...................................... 29 

5.5.1.  Option 3a/1: The harmonisation of payment periods between economic operators.. 29 

5.5.2.  Option 3a/2: the harmonisation of the periods for payment by national authorities to 

economic operators .................................................................................................... 33 

5.6. 

5.7. 

5.8. 

5.9. 

Option 3b (legislative): increasing the “margin” interest rate ................................... 35 

Option 3c (legislative): the abolition of the threshold ............................................... 36 

Option 3d (legislative): the introduction of a “Late Payment Fee” ........................... 37 

Option 3e (legislative): the introduction of a “Late Payment Compensation” .......... 39 

5.10.  Option 3f (legislative): Extending the role of representing organisations ................. 39 

6. 

6.1. 

6.2. 

6.3. 

7. 

8. 

8.1. 

8.2. 

8.3. 

8.4. 

8.5. 

Comparing the options ............................................................................................... 40 

General comparison ................................................................................................... 40 

Ranking the options.................................................................................................... 43 

Administrative cost .................................................................................................... 44 

Monitoring and evaluation ......................................................................................... 44 

Annexes...................................................................................................................... 45 

Annex 1: Results of the I.P.M. consultation of interested parties.............................. 45 

Annex 2: Results of the EBTP consultation of interested parties .............................. 52 

Annex 3: The causes and the size of the problem: facts and figures ......................... 58 

Annex 4: Detailed description of the baseline option ................................................ 84 

Annex 5: Options discarded at an early stage ............................................................ 86 

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8.6. 

8.7. 

Annex 6: overview of the jurisprudence of the Court of Justice about the Directive 95 

Annex 7: Transposition of Article 3(5) (organizations representing SMEs) and 
Article 6(3)(c) (threshold of €5)................................................................................. 97 

8.8. 

Annex 8: the SME test ............................................................................................... 98 

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Lead  DG:  ENTR.  Other  services  invited  to  participate:  SG,  SJ,  COMP,  BUDG,  SANCO, 
TAXUD, ECFIN, MARKT and JLS. The Impact Assessment Board delivered its opinion on 
17 December 2008 [D(2008)10479]. All recommendations made by the Board were taken into 
account  and  this  document  was  amended  accordingly.  Agenda  planning  or  WP  reference: 
2009/ENTR/006.  This  report  commits  only  the  Commission's  services  involved  in  its 
preparation  and  does  not  prejudge  the  final  form  of  any  decision  to  be  taken  by  the 
Commission. 

1. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

An inter-service steering group was established, in which ENTR, ECFIN, MARKT 
and  JLS  participated.  SG,  SJ,  COMP,  BUDG, SANCO and TAXUD declined. The 
steering group met on 17 April, 19 May, 11 September and 14 November 2008. 

Stakeholders  were  consulted  through  a  public  consultation  through  I.P.M.1  (Your 
Voice  in  Europe2)  in  accordance  with  the  Commission’s  minimum  standards  on 
public consultation. In addition, the EBTP (European Business Test Panel)3 was also 
consulted.  The  results  of  these  consultations  are  incorporated  in  this  impact 
assessment.  This  impact  assessment  also  draws  on  external  expertise4  and  different 
publications mentioned in the footnotes throughout the text. 

2. 

PROBLEM DEFINITION 

2.1. 

The problem and its size  

In  the  EU,  most  goods  and  services  are  supplied  by  businesses  to  other  businesses 
and to public authorities on a deferred payment basis whereby the supplier gives its 
client time to pay (“trade credit”). This time period is agreed between parties, or set 
out in the supplier’s invoice or laid down by law. At the latest at the end of the trade 
credit  period,  the  supplier  expects  payment  for  the  goods  or  services  delivered. 
Payment made after the trade credit period constitutes late payment. 

When  a  business  delivers  products  or  services  to  other  businesses  or  to  public 
authorities (hereinafter “commercial transactions”), each transaction can represent 
a  significant  share  of  the  turnover  of  the  economic  operator  concerned.  Therefore, 
most  businesses  expect  payment  for  commercial  transactions  within  a  reasonable 
time  so that they can pay their own debts and invest in future activities and assets. 
The  deadline  for  payment  in  commercial  transactions  is  either  specifically  agreed 
upon  or  laid  down  in  the  general  commercial  conditions  of  the  economic  operator 
delivering the products or the services.  

1 
2 
3 
4 

http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=Latepayment&lang=en. See Annex 1. 
http://ec.europa.eu/yourvoice/index_en.htm. 
http://ec.europa.eu/yourvoice/ebtp/index_en.htm. See Annex 2. 
Study  on  the  effectiveness  of  Directive  2000/35/EC  (2006),  hereinafter  the  “Hoche  report” 
(http://ec.europa.eu/enterprise/regulation/late_payments/further_reading.htm)  and  a study  by  RPA  Ltd. 
(2008), herinafter the “RPA Report”. 

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However,  many  payments  in  commercial  transactions  between  businesses  or 
between businesses and public authorities are made later than agreed or laid down 
in the general commercial conditions (hereinafter “late payment”5). Although the 
goods  are  correctly  delivered  or  the  services  well  performed,  the  corresponding 
invoices remain unpaid or are paid well after the deadline. These practices impinge 
on  liquid  assets  and  complicate  the  financial  management  of  enterprises.  They  can 
also affect their competitiveness and profitability when the creditor needs to obtain 
external  financing  because  of  late  payments.  They  also  have  a  negative  effect  on 
intra-Community commercial transactions, as will be explained below. 

Directive  2000/35/EC  was  adopted  to  combat  late  payment  in  commercial 
transactions  between  businesses  or  between  businesses  and  public  authorities6. 
According  to  the  Directive,  statutory  interest  may  be  charged  when  payment  is  not 
made  within  the  contractual  or  legal  deadline.  It  becomes  payable  from  the  day 
following the date, or the end of the period, for payment fixed in the contract, or 30 
days  following  the  date  of  receipt  by  the  debtor  of  the  invoice  or  an  equivalent 
request  for  payment.  The  general  rule  is  that  the  level  of  interest  for  late  payment 
("the  statutory  rate"),  which  the  debtor  is  obliged  to  pay,  should  be  the  sum  of  the 
interest  rate  applied  by  the  European  Central  Bank  to  its  most  recent  main 
refinancing  operation  carried  out  before  the  first  calendar  day  of  the  half-year  in 
question ("the reference rate")7, plus at least seven percentage points ("the margin"), 
unless otherwise specified in the contract: 

Table 1.1: Interest rates for late payments in the EU (1 January 2009) 

Eurozone 

Reference rate (currently the ECB rate is 2.5% plus the margin of at least 7 
percentage points in all Member States of the Eurozone 
Exceptions:  Reference  rate  plus  margin  of  at  least  8  percentage  points: 
Germany, Austria, Slovenia 

Not Eurozone 

Reference rate (National Bank rate) plus margin of at least 7 percentage points: 
Bulgaria 
Czech Republic 
Denmark 
Estonia 
Latvia 
Lithuania 

9.5% 

10.5% 

12.17% 
9.25% 
10.5% 
9.5% 
13% 
15.21% 

5 

6 

7 

According  to  Article  2(2)  of  Directive  2000/35/EC  on  combating  late  payment  in  commercial 
transactions, late payment means “exceeding the contractual or statutory period of payment”. The Court 
of  Justice  confirmed  in  this  respect  that,  pursuant  to  Article  3(1)(a)  of  the  Directive,  the  parties  are 
generally  free  to  fix  in  their  contract  the  date or  the  period  for  payment  (judgement  of  11  December 
2008, Commission v. Spain, Case C-380/06). 
The  Directive  defines  commercial  transactions  as  “transactions  between  undertakings  or  between 
undertakings and public authorities which lead to the delivery of goods or the provision of services for 
remuneration.” The directive applies to more than 23 million undertakings in the EU. It is estimated that 
there are around 15 billion commercial transactions per year in the EU. 
In  practice,  the  ECB  rates  are  published  at  the  beginning  of  every  January  and  July  in  the  Official 
Journal, series C. The reference rate in force on the first calendar day of the half-year in question shall 
apply for the following six months. See http://www.ecb.eu/stats/monetary/rates/html/index.en.html. For 
a  Member  State  which  is  not  participating  in  the  third  stage  of  economic  and  monetary  union,  the 
reference rate referred to above is the equivalent rate set by its national central bank. For the purposes 
of the Directive, the reference rate in force on the first calendar day of the half-year in question applies, 
in both cases, for the following six months. 

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Hungary 
Poland 
Rumania 
Exceptions: reference rate (National Bank rate) plus margin of at least 8 percentage points: 
10% 
United Kingdom  
10% 
Sweden  

17% 
12.25% 
17.25% 

The Directive mainly addresses the situation where the commercial debt is eventually 
paid after the contractual or legal deadline but without any judicial proceedings. Yet, 
when  judicial  proceedings  are  necessary  for  obtaining  payment  of  the  commercial 
debt, the Directive obliges Member States to ensure that an enforceable title can be 
obtained, irrespective of the amount of the debt, normally within 90 calendar days of 
the  lodging  of  the  creditor's  action  or  application  at  the  court  or  other  competent 
authority,  provided  that  neither  the  debt  nor  other  aspects  of  the  procedure  are 
disputed. 

Despite  this  Directive,  late  payments  in  commercial  transactions  are  still  a 
widespread practice in the EU: 

Table 1.2: Evolution of late payments for SMEs in 7 EU Member States 
(average actual delays in number of days) 

Germany 
Belgium 
Spain 
Italy 
Portugal 
U.K. 

2003 
12 
23 
10 
19 
45 
18 

2004 
13 
16 
9 
16 
35 
10 

2005 
19 
20 
13 
27 
38 
18 

2006 
13 
19 
18 
21 
38 
15 

2007 
15 
17 
12 
21 
38 
13 

Source : Eurofactor, Baromètres 2006, 2007 and 20088 

There is overwhelming evidence9 that late payment in commercial transactions is still 
a  general  problem  within  the  EU.  For  example:  a  study  in  10  Member  States 
indicates  that  98%  of  all  economic  operators  experience  late  payment10.  Belgian 
surveys11 show that 31% to 49% of responding enterprises experience problems with 

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on 

http://www.payontime.co.uk/news/news_main.html, 

More detailed figures are shown in Annex 3. 
Besides the sources quoted in other footnotes, other information about payment delays can be found, for 
example, 
http://www.ivkm.be/, 
http://www.finances.gouv.fr/directions_services/cedef/synthese/delais-paiement/synthese.htm, 
http://www.crion.com/cms_files/N-77-nlBestand.pdf, 
http://www.iec-
http://www.fd.nl/artikel/9669604/top10-
iab.be/ned/publicaties_info_economie.aspx?id=1847, 
betalingsexcuses,  http://managementscope.nl/nieuws/2028-credit-managers-kredietwaardigheid/2028-
http://www.cfo-news.com/ESPANA-%7C-En-Espana-la-Ley-
credit-managers-kredietwaardigheid, 
contra-la-morosidad-no-es-suficiente_a337.html, 
http://www.cmrc.co.uk/surveys/debt_survey/, 
https://www.financialworld.co.uk/Archive/2008/2008_06jun/Features/late_payments/14414.cfm, 
http://www.startups.co.uk/6678842910891084831/late-payments-rise-to-8-3bn.html, 
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2293,59872848,2293_68195655&_dad=portal&_
schema=PORTAL#fbs2, 
http://eos-
ksi.cz/fileadmin/user_upload/Eastern_Europa/EOS_KSI_CZ/EOS_Payment_Practices.pdf, 
http://www.eulerhermes.com/en/documents/studybrochurecreditmanagement.pdf/studybrochurecreditm
anagement.pdf and many other sites. 
Study  on  Credit  Management  Practice  in  10  European  Economies,  commissioned  by  Euler  Hermes, 
2006. 
Survey  organised  by  UNIZO,  “Dossier  Betalingsachterstanden:  UNIZO-Actieplan  tegen  slechte 
betalers”, 
2008: 
by 
2005; 
http://www.nsz.be/index.cfm?PageID=18119&News_ID=18538&style=66. 

http://press.experian.com/documents/showdoc.cfm, 

organised 

Survey 

March 

NSZ 

24 

in 

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late payments, with an average payment delay of 28 days. For 81% of respondents, 
late  payment  is  an  important  problem.  Another  source  points  out  that  average 
payment  delays  throughout  Europe  increased  from  16  days  in  2007  to  17  days  in 
200812. According to a recent survey13, over 30% of turnover is paid late to around 
44% of the larger companies. The situation is worse for smaller enterprises: 59% of 
them  are  paid  late  for  more  than  30%  of  their  turnover.  A  further  27%  of  large 
companies  indicated  that  between  20%  -  30%  of  turnover  is  paid  late,  with  the 
corresponding figure for smaller companies being around 14%. In the UK, 48% of all 
SME  employers  consulted  reported  late  payment  as  a  problem  with  one  in  six 
describing it as a major problem (up from 12% in 2005)14. The Survey organised for 
the RPA Report shows the following results: 

Table 1.3: Percentage of turnover paid late 

Percentage 
turnover 

<1% 

1-5% 

5-10% 

10-20% 

20-30% 

>30% 

No 
response 

>250 staff 

<250 staff 

4.8% 

1.3% 

15.9% 

10.1% 

9.5% 

8.8% 

6.3% 

8.2% 

23.8% 

38.1% 

14.5% 

56.6% 

1.6% 

0.6% 

Stakeholder Consultations point in the same direction: 53% of the EBTP respondents 
frequently  encounter  late  payment  in  B2B  transactions  while  32%  frequently 
encounter  late  payment  by  public  authorities.  More  than  65%  of  the  businesses 
responding  in  the  IPM  consultation  frequently  encounter  late  payment  in  B2B 
transactions while 61% frequently encounter late payment by public authorities. 

Surveys  also  show  that,  in  general,  late  payment  occurs  frequently  in  the  public 
sector. According to a recent report, public authorities sustained their position as the 
worst payers in the EU, taking an average of 65 days to pay an invoice, compared to 
55 days for businesses15. The RPA on-line survey with regard to amounts owed by 
the public/private sector16 indicates that around 30% of the SMEs responding stated 
that 90% or more of their late payments are owed to them by the public sector, with 
another  30%  indicating  that  a  similar  percentage  is  owed  to  them  by  the  private 
sector. Only 12.7% of larger companies attribute 90% or more of their late payments 
to  the  public  sector,  while  around  32%  attribute  90%  or  more  of  late  payments  to 
private sector clients. When asked about the sectors that have most difficulty paying 
within  30  days, 31% of all companies responding to the on-line survey highlighted 
the  public  sector.  Other  surveys  confirm  these  findings.  In  Belgium,  for  example, 
only  13%  of  respondents  experienced  payment  within  90  days17.  In  Italy,  a  survey 
points out that payment delays for public administrations increased from 138 days in 
2008 to 170 days nowadays. 50% of enterprises supplying to public administrations 

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14 

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16 
17 

Intrum Justitia, European Payment Index 2008. 
Survey organised for the RPA report. 
BERR,  Department  for  Business,  Enterprise  &  Regulatory  Reform,  The  Annual  Survey  of  Small 
Businesses’ Opinions 2006/07 (ASBS 2006/07), URN 07/389. 
Intrum  Justitia,  European  Payment  Index  2008:  White  paper  Industries  and  credit  management  best 
practices, September 2008. 
See Table 3.11 in Annex 3. 
http://www.sninet.be/. 

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suffer payment delays averaging 2-4 months. For 25%, it takes about 4 to 6 months 
to get paid18.  

2.2. 

The causes of the problem  

The roots of late payments in commercial transactions and the corresponding passive 
attitude of many creditors are diverse and interrelated19: 

2.2.1.  The market structure 

The  level  of  competition  within  a  market,  the  market  power  of  market  participants 
and  the  corresponding  fear  of  harming  commercial  relationships  with  clients  are 
important  factors  determining  whether  creditors  accept  or  refuse  late  payment  and 
whether  debtors  seek  an  extension  of  the  period  of  trade  credit.  The  position  of  a 
creditor  in  a  specific  market  will  have  a  large  impact  on  his  attitude  vis-à-vis  late 
payment  and  on  his  fear  of  damaging  his  commercial  relationship  with  the  client 
which is the most important reason for EBTP respondents and IPM respondents not 
to claim interest for late payment:20 

Table 1.4: Why do IPM and EBTP respondents never claim interest? (Multiple replies possible) 

Out of fear that the customer would be lost 
It is too complicated to claim interest 
Competitors never claim interest for late payments 
Late interest is considered as revenue, even when it is paid 
Unawareness about the right to charge interest for late payment 
The interest rate is unknown 
Don't know 

IPM 
58.3% 
47.9% 
37.5% 
4.9% 
11.8% 
7.6% 
3.5% 

EBTP 
68.5% 
45.9% 
28.8% 
13.5% 
13.5% 
7.2% 
5.4% 

Some  businesses  do  not  react  to  late  payment  since  the  tacit  extension  of  the  trade 
credit  they  thereby  grant  to  the  customer  is  an  element  of  their  marketing  strategy 
and  a  potential  source  of  competitive  advantage  for  generating  sales  and  customer 
loyalty.  The  acceptance  of  late  payment  by  suppliers  can  also  respond  to  the 
customer’s  needs  or  demand  for  short-term  finance,  or  can  signal  the  financial 
solidity or the commercial reputation of a business, and even indirectly the quality of 
the  product  or  service.  Nevertheless,  many  suppliers  will  take  into  account  the 
competitive structure of the markets in which they operate, the bargaining strengths 
of  both  parties  and  the  conditions  affecting  the  supply  of  alternative  sources  of 
corporate finance21. 

For  debtors,  the  main  reasons  for  timely  payment  in  commercial  transactions  are 
often  related  to  commercial  or  professional  repute  or  mutual  trust  in  long-term 
commercial  relationships.  In  other  circumstances,  the  debtor  is  in  a  strong  position 
up to the moment of payment. After the delivery of the goods or services, the power 

18 
19 
20 
21 

http://www.varesenotizie.it/varese-economics.html.  
See Table 3.1 in Annex 3. 
See Annex 3. 
Wilson N., “An Investigation into Payment Trends and Behaviour in the UK: 1997-2007”, Department 
for Business, Enterprise & Regulatory Reform and CMRC, 2008. 

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in  short-term  or  one-off  commercial  relationships  automatically  shifts  to  the  debtor 
until the date of payment. 

Furthermore, many debtors know that they are unlikely to be sanctioned for paying 
late. This feeling of impunity derives from several factors, notably the awareness that 
most creditors are hesitant to take action to preserve their commercial relationships, 
the  slowness  and  prohibitive  cost  of  legal  procedures  to  claim  payment  and  the 
corresponding interest and, for some debtors, the non-deterrent rate of the statutory 
interest.  Debtors’  insouciance  also  has  its  roots  in  a  very  competitive  supply  chain 
whereby customers can pick and choose their suppliers among many competitors, or 
in a market with imperfect competition. 

In addition to the problem of late payment, stakeholders also often argue that they are 
forced to stretch the contractual payment period or to accept unreasonable payment 
conditions.  During  contract  negotiations  for  commercial  transactions  or  during  the 
public procurement process, parties do not necessarily have equal negotiation power. 
In  particular,  SMEs  often  find  themselves  in  a  weak  position  when  negotiating 
contracts  with  larger  entities  and  have  to  consent  to  very  long  payment  periods  to 
strike the deal. In some cases, they could be forced to sign a contract that expressly 
excludes  the  payment  of  interest  in  case  of  late  payment.  In  most  Member  States, 
contract  law  does  not  set  standardised  and  legally  enforceable  payment  periods 
protecting  SMEs  from  contractual  clauses  stipulating  very  long  payment  periods. 
This  is  compounded  by  the  fact  that  SMEs  normally  have  insufficient  expertise  in 
contract negotiations and/or insufficient time to negotiate contracts.  

2.2.2.  The business cycle,  

Changing macroeconomic conditions are another cause of late payment. A business 
cycle  downturn  is  likely  to  cause  more  late  payments  as  firms  delay  paying  their 
invoices  to  stretch  their  liquidity.  Also,  firms  suffer  from  a  a  reduced  ability  to 
generate  income  from  their  operations  because  of  receding  demand,  and  banks 
tighten credit conditions possibly reducing credit volume to firms.  

However, improvement in economic conditions may also provoke an increase in late 
payment  for  certain  firms  presented  with  more  investment  opportunities  and, 
consequently a greater need to obtain a sufficient amount of financing. 

2.2.3.  Access to finance and budgetary constraints  

Monetary policy, the availability of credit, the flow and nature of credit information, 
the  liquidity  position  of  the  firm  and  the  availability  of  financial  resources  from 
banks may also affect payment behaviour, particularly for businesses for which bank 
credit is a substitute for supplier financing.  

Many debtor enterprises and public authorities consider late payment an efficient and 
cheap way to finance their own businesses and activities. For public authorities, late 

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payments  to  creditors  are  an  efficient  way  to  overcome  budgetary  constraints  by 
postponing payments to the next budgetary period22. 

2.2.4.  The internal organisation of creditors and debtors,  

The financial management practice of debtors (including public authorities) and the 
credit management practice of creditors as well as their product and service quality 
and after-sales service are important factors in (avoiding) late payment. Creditors in 
commercial  transactions,  and  especially  SMEs,  do  not  necessarily  have  appropriate 
credit management systems for preventing or managing late payments: 

Table 1.5: Payment Surveillance Practices 

g
n
i
k
c
e
h
c

)
y
l
k
e
e
w

(

l
a
u
n
a
M

g
n
i
k
c
e
h
c

l
a
u
n
a
M

)
y
l
h
t
n
o
m

(

n
e
h
w

s
e
i
f
i
t
n
e
d
i

e
r
a

s
e
c
i
o
v
n
i

d
e
t
a
m
o
t
u
A

m
e
t
s
y
s

e
u
d

h
c
i
h
w

m
e
t
s
y
s

d
n
a

s
e
r
a
p
e
r
p

s
e
c
i
o
v
n
i

s
d
n
e
s

d
e
t
a
m
o
t
u
A

s
i

e
m

i
t

n
e
h
W

e
l
b
a
l
i
a
v
a

r
e
h
t
O

3.2% 

1.6% 

61.9% 

6.3% 

0.0% 

27.0% 

10.7% 
Source: survey organised for the RPA Report 

45.3% 

9.4% 

6.9% 

1.9% 

25.8% 

>250 staff 

<250 staff 

For  more  than  45%  of  EBTP  and  IPM  respondents,  it  is  too  complicated  to  claim 
interest  when  late  payment  occurs.  Smaller  enterprises  usually  have  insufficient 
resources  to  take  action  against  the  debtor.  Some  of  them  do  not  know  how  to 
calculate late payment interest while others lack the means to enforce payment. It is 
arguable that smaller firms are less able than large firms to insist on prompt payment. 
This, in turn, may be because SMEs feel more pressure, despite the cost of extending 
trade  credit  on  a  net  basis,  to  offer  this  financial  service  just  to  stay  in  business23. 
More than 28% of the EBTP respondents and 37.5% of IPM respondents never claim 
interest because their competitors never do. 

22 

23 

According to the IMF, payment delays by public authorities often arise from attempts to slow down the 
recording of expenditures at the final stages of the spending process. Faced with a monthly or quarterly 
financing constraint, public authorities are often tempted to slow down the payment process by delaying 
the issue of payment orders in order to meet financing ceilings. In accrual accounting terms, once goods 
or  services  are  verified  as  delivered,  the  government  has  incurred  a  liability;  only  in  cash  accounting 
terms do such practices have any purpose (albeit misguided). If the above practices are relied on for a 
prolonged period, the authorities’ liabilities (and hence expenditure levels) are not correctly reflected in 
the bank accounts, owing to the existence of unpaid overdue bills, which represent expenditure arrears. 
Therefore, the IMF advises ministries of finance to carefully compare their reports on bills received and 
payment  orders  issued  with  those  on  payment  orders  encashed,  as  recorded  by  the  central  bank  or 
government payment agency. The IMF suggests several causes for late payments by public authorities. 
For example, the budget provision is unrealistic and line ministries are allowed to commit expenditure 
within that appropriation (i.e., budget provision), even though there is no cash available to liquidate the 
expenditure.  Or  the  budget  figures  may  be  realistic,  but  the  cash  plan  (and  monthly  cash  limits) 
associated  with  the  budget  are  not,  or  there  is  no  in-year  guidance  on  when  expenditures  can  be 
committed. Commitments may not be recorded and therefore do not respect the budget ceilings or the 
timetable  defined  by  the  cash  plan.  Finally,  the  public  authorities  may  not  be  efficiently  organised. 
Source: http://www.imf.org/external/pubs/ft/expend/guide4.htm#probexe. 
Wagenvoort  R.,  “Are  finance  constraints  hindering  the  growth  of  SMEs  in  Europe?”,  in:  Europe's 
changing  financial  landscape:  The  financing  of  small  and  medium-sized  enterprises,  EIB  Papers 
Volume 08. n°2/2003.  

EN 

11 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
2.2.5.  The absence of effective and efficient remedies 

Despite Directive 2000/35/EC, many businesses, and in particular SMEs, do not 
charge interest when entitled to do so, thus contributing to the situation in which 
debtors  are  not  sanctioned  for  paying  late24.  75%  of  EBTP  respondents  seldom  or 
never  claim  interest  for  late  payments.  According  to  the  responses  from  a  specific 
questionnaire on claims for late payment interest, the average claim rate for SMEs is 
13.5%  of  all  late  payments  and  the  equivalent  rate  for  large  companies  is  18.24%. 
According to a consultation organised in France, 90% of participating organizations 
think  that  less  than  10%  of  their  members  put  into  practice  the  statutory  interest 
provided for by law. Other sources confirm these figures: 

Table 1.6: companies claiming interest for late payments in 7 EU Member States 

Germany 
Belgium 
Spain 
France 
Italy 
Portugal 
United Kingdom 

2005 
54% 
39% 
25% 
11% 
25% 
22% 
11% 

2006 
47% 
36% 
22% 
15% 
21% 
20% 
13% 

2007 
52% 
34% 
14% 
12% 
21% 
26% 
22% 

Source : Eurofactor, Baromètres 2006, 2007 and 2008 

For some creditors, the cost of taking action against late payment is not justified by 
the financial benefits. In many cases, the expenses of the extra-paperwork cannot 
be  recovered.  Chasing  late  paying  clients  or  charging  interest  for  late  payments 
generates administrative costs that many businesses wish to avoid. For about 66% of 
EBTP and IPM respondents, the loss of management time and working hours is the 
most important effect of late payment. Furthermore, the final amount of the statutory 
interest  due  from  a  debtor  can  only  be  calculated  on  the  day  that  the  creditor  is 
actually  paid  so  the  latter  must  await  payment  before  he  can  know  exactly  the 
amount  of  interest  that  he  could  charge.  In  addition,  the  costs  of  charging  interests 
before  the  actual  date  of  payment  would  outweigh  the  financial  benefits  in  most 
cases. 

In  addition,  several  key  provisions  of  the  Directive  are  unclear  or  difficult  to 
implement in practice25. For instance, diverse interpretations are conceivable for the 
calculation of the applicable interest rate, the definition of “relevant recovery costs” 
and  the  possibility  of  compound  interest.  Moreover,  the  Directive  specifies  that 
Member  States  may  exclude  claims  for  interest  of  less  than  €5 26.Thus,  the 
Directive  implies  in  practice  that  the  creditor  will  have  to  wait  until  the  interest 
reaches €5 before effectively charging it. This additional delay obviously depends on 
the interest rate and the amount owed. For example, a creditor can only claim interest 
for a late payment of €1,000 after 17 days following the payment deadline (based on 
a reference rate of 11%). 

24 
25 

26 

Etude sur les délais de paiement”, by Prof. Michel Glais, 2005. See Tables 3.8 and 3.9 in Annex 3. 
Although the Directive is fairly recent, already 5 cases with divergent interpretations of the Directive 
were submitted to the Court of Justice. An overview of this jurisprudence is shown in Annex 6. 
See Annex 7. 

EN 

12 

   EN 

 
 
                                                 
2.3. 

The effects of the problem 

2.3.1.  Late payment represents a significant cost to creditor enterprises 

In  general,  late  payment  strains  cash  flow,  adds  financial  and  administrative  costs, 
squeezes investment opportunities and fuels uncertainty for many creditor businesses 
and  in  particular,  SMEs27,  especially  in  an  economic  downswing  with  limited  and 
expensive access to finance. 

The  result  is  often  that  their  competitiveness  and  solvency,  and  eventually  their 
viability are compromised28. Based on the responses to a survey and on a number of 
assumptions29,  the  value  of  turnover  paid  late  accounts  for  around  €1,864  billion 
across the EU: 

Table 1.7: Value of annual turnover (€bn) paid late 30 

EU 
Large company turnover paid late 
SME turnover paid late 
TOTAL 

€bn 
724 
1,141 
1,864 

It should be noted that SME’s are particularly vulnerable to late payments:  

(1) 

SMEs  are  more  exposed  to  variations  in  cash  flow:  the  financial  costs  of 
late payment for SMEs are particularly high31, with cash-flow needs having to 
be met by short-term bank loans or overdrafts. Micro and small companies’ 
lower  turnover  and  limited  access  to  finance  often  result  in  more  expensive 
credit32. 

27 

28 

29 

30 

31 

32 

OECD  SME,  2002.  In  Successes  and  Challenges  for  SMEs,  2003,  the  SME  Union  observes  that 
payment delays caused by big companies are twice as frequent as those caused by SMEs. A survey in 
the  UK  (Mamut  survey,  published  November  2006)  showed  that  56%  of  the  SMEs  with  less  than  20 
employees have debtors who are late payers versus only 29% of those with 20-50 employees. See also 
Bulletin de la Banque de France, n. 168, décembre 2007, p. 82-84. 
Pike R., Cheng N.S., Cravens K. and Lamminmaki D.: “Trade Credit Terms: Asymmetric Information 
and  Price  Discrimination  Evidence  From  Three  Continents”;  Journal  of  Business  Finance  & 
Accounting, 32(5) & (6), June/July 2005, p. 1201. 
This turnover could be linked to any delay, i.e. from one day’s delay to 60 days’ delay or more. This 
figure  has  been  calculated  by  combining  the  average  percentage  of  turnover  paid  late  with  data  on 
average company turnover by size from Eurostat. Yet, since this figure is based on people responding to 
the RPA questionnaire, it may overestimate the turnover paid late reflecting respondents’ bias towards 
the subject. 
Applies  average  percentage  paid  late  to  average  company  turnover  by  size,  as  given  in  EUROSTAT, 
but assumes the mid-value for percentage of turnover paid late, i.e. 3%, 7.5%, 15%, 25% and 30% for 
the last category of percentage turnover paid late. B2B turnover has been calculated assuming that the 
% of company turnover from B2B transactions is 42% of the overall turnover. This assumption is made 
on the basis that consumer spending represents approximately 58% of EU GDP. See Table 3.7 in Annex 
3 for further details. 
In  France  for  instance,  it  has  been  calculated  that,  for  50%  of  the  SMEs,  late  payments  amount  to  a 
charge in their cash-flow equivalent of more than 20 days of business. Source: « Délais de paiement et 
solde du crédit interentreprises de 1990 à 2006 », in Bulletin de la Banque de France, n. 168, décembre 
2007, p. 81. 
See,  for  example,  Petersen  M.  and  Rajan  R.G.,  "Trade  Credit:  Theories  and  Evidence"  (1996-06-01), 
NBER  Working  Paper  No.  W5602,  http://ssrn.com/abstract=225540;  Wilson  N,  Summers  B.,  “Trade 
Credit  terms  offered  by  Small  Firms:  Survey  Evidence  and  Empirical  Analysis”,  Journal  of  Business 
Finance & Accounting, 2002, Vol. 29 (3&4), p. 317; Pike R. and Sang Cheng N., “Credit Management: 

EN 

13 

   EN 

 
                                                 
(2) 

(3) 

SMEs often rely on a limited number of clients: the vulnerability of SMEs 
is accentuated by their narrow client spread and the resulting overreliance on 
specific client activity to maintain revenue streams33. SMEs are often reliant 
on only a handful of clients for a large proportion of turnover and this in turn 
leads to clients abusing their position by imposing very long payment periods 
in contracts and/or paying late. 

The  administrative  costs  of  pursuing  debts  are  disproportionately  high 
for SMEs, as they typically have neither specialized staff nor enough time to 
properly manage outstanding claims. For example, an average SME in Great 
Britain spends 2.5 hours a week chasing late payments34.  

Table 1.8: Impact of late payments on enterprises: some examples 

The Hoche report shows that for 8% of respondents, late payments impact directly and significantly 
on their survival chances while another 49% of respondents considered that late payments have an 
impact on their survival chances. 
A  study  in  10  Member  States  points  out  that  76%  of  all  economic  operators’  cash  flow  has  been 
affected by late payment35. 
Another survey36 showed that the profitability of 39% of British firms had been hit by late payment. 
A third (30% of British companies had been unable to pay their own bills on time as a result of late 
payment which had also forced almost one in five companies (18% to delay the expansion of their 
business .  
Other research37 showed that almost a fifth of SMEs (19% now employ a dedicated person to chase 
up late payments – losing an average of 17 working days a year to this task . 
For 31% of EBTP respondents, late payment slows down the growth of their business and for 28%, 
it  affects  their  productivity.  Late  payment  has  a  negative  effect  on  investment  for  22%  of  EBTP 
respondents and for 13% of them, it threatens the survival of their business. Late payment does not 
affect the business of 18% of EBTP respondents. 
Managing cash flow is still perceived as an obstacle to success by almost half of SME employers, 
according to a survey. Over half of the respondents who reported cash flow to be an obstacle cited 
late payment as being a key concern. 56% cited late payment from businesses. Possibly because of 
the  size  of  unpaid  invoices,  late  payment  by  businesses  was  more  commonly  cited  as  the  biggest 
challenge  in  cash  flow  terms  (30  per  cent,  compared  to  13  per  cent  citing  late  payment  from 
individuals)38.  

From  a  macroeconomic  perspective,  late  payment  has  a  detrimental  effect  where  it 
requires  economic  operators  to  take  out  loans  at  a  higher  interest  rate  than  the  late 
paying customers.  

An examination of Policy Choices, Practices and Late Payment in UK Companies”, Journal of Business 
Finance  &  Accounting,  2001,  Vol.  28,  7&8,  p.  1013;  Wagenvoort  R.,  “Are  finance  constraints 
hindering the growth of SMEs in Europe?” in: Europe's changing financial landscape: The financing of 
small and medium-sized enterprises, EIB Papers Volume 08. n°2/2003. 
Howorth C. and Reber B., “Habitual late payment of trade credit: an empirical examination of UK small 
firms”,  Managerial  and  Decision  Economics,  2003,  Vol.  24,  6-7,  according  to  which  a  concentrated 
supplier  base  is  shown  to  be  positively  associated  with  late  payment.  Their  case  studies  provide 
evidence that this is because increased knowledge of suppliers' credit management procedures is used to 
pay late without penalties. 
Source: Bacs Payment Schemes Limited (Bacs), 2007. 
Study  on  Credit  Management  Practice  in  10  European  Economies,  commissioned  by  Euler  Hermes, 
2006. 
Research published on August 2007 by Creditsafe: http://www1.creditsafeuk.com/?id=975&cid=1110. 
Research 
Ltd.: 
by 
http://www.bacs.co.uk/Bacs/Businesses/SME/Useful+tools/Late+payment+tips/Late+payment+tips.htm 
BERR,  Department  for  Business,  Enterprise  &  Regulatory  Reform,  The  Annual  Survey  of  Small 
Businesses’ Opinions 2006/07 (ASBS 2006/07), URN 07/389. 

conducted 

Schemes 

Payment 

2007 

Bacs 

in 

33 

34 
35 

36 
37 

38 

EN 

14 

   EN 

 
                                                                                                                                                         
2.3.2.  Debtor companies and public authorities paying late get free trade credit 

When  a  business  pays  its  suppliers  on  time  and  clients  pay  on  time,  its  debts  and 
credits  are  broadly  in  balance. But  when, for instance, suppliers are  paid within 30 
days  and  clients  only  pay  within  90  days,  the  resulting  imbalance  requires  to  be 
financed. Paying late is sometimes considered as a means of refinancing as opposed 
to  applying  for  bank  loans39.  Trade  credit  is  the  single  most  important  source  of 
external finance for firms. It appears on every balance sheet and represents more than 
one half of businesses’ short term liabilities and a third of all firms’ total liabilities in 
most  OECD  countries.  For  example,  £18.6  billion  is  owed  in  outstanding  (but  no 
necessarily  late)  payments  to  Britain’s  SMEs  in  2008  –  a  leap  of  £2.6  billion 
compared with the year before. The average amount owed to an SME at any one time 
is £30,00040.  

There  is  strong  evidence  that  trade  credit  is  used  to  alleviate  credit  constraints 
whereby  firms  insure each  other against liquidity shocks, especially since suppliers 
continue  to  extend  trade  credit  to  firms  that  already  defaulted  on  a  payment  in  the 
past. Small, liquidity-strapped firms with little access to outside finance seem to pass 
liquidity shocks on to their suppliers by defaulting on trade credit41. If the supplier is 
also  small  and  short  of  liquidity  and  cannot  raise  fresh  funds  on  short  notice,  a 
substantial portion of the shock is likely to be passed on further down the trade credit 
chain42. 

2.3.3.  Late payments have a negative impact on intra-community trade.  

In most Member States, businesses perceive selling goods and services to businesses 
and authorities in another Member States as entailing a higher risk of late payment: 

39 

40 
41 

42 

Cunat  V.,  “Trade  Credit:  Suppliers  as  Debt  Collectors  and  Insurance  Providers”,  Universitat  Pompeu 
Fabra  &  Financial  Markets  Group  (LSE),  May  2005;  SMES  under  threat  from  late  payments,  Intrum 
Justitia, 2005, p. 13; Russo P.F. and Leva L, “The use of trade credit in Italy: how important are the 
financial motives”, Bank of Italy, Working Paper No 496, June 2004; See table 3.10 in Annex 3. 
Research commissioned by the Banker’s Automated Clearing Services (Bacs) - 2008. 
Peel  M.  J.,  Wilson  N.  and  Howorth  C.,  “Late  Payment  and  Credit  Management  in  the  Small  Firm 
Sector: Some Empirical Evidence”, International Small Business Journal, 2000, 18, p. 17. 
Boissay F. and Gropp R., “Trade credit defaults and liquidity provision by firms”, ECB Working Paper 
No 753, May 2007. 

EN 

15 

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Table 1.9: Terms of payment vs. actual payment in 11 Member States (number of days - 2007) 

Domestic trade 

Non-domestic trade 

Differences in 
actual delays  

Member State of 
establishment 

Terms of 
payment  

Actual 
payment 
period 

Actual delay 

Terms of 
payment  

Actual 
payment 
period 

Actual delay 

Austria 

Belgium 

Czech Republic 

France 

Germany 

Hungary 

Italy 

Poland 

Romania 

Slovakia 

United Kingdom 

28 

35 

26 

46 

26 

29 

81 

23 

30 

26 

35 

30 

41 

32 

56 

31 

36 

80 

30 

32 

31 

41 

2 

6 

6 

10 

5 

7 

-1 

7 

2 

5 

6 

28 

35 

26 

46 

26 

29 

81 

23 

30 

26 

35 

41 

45 

34 

60 

46 

38 

66 

26 

28 

32 

46 

13 

10 

18 

14 

20 

9 

-15 

3 

-2 

6 

11 

11 

4 

12 

4 

15 

2 

-14 

-4 

-4 

1 

5 

Source : Atradius Payment Practices Barometer – Winter 2007 and May 2008 

Among other reasons, the  risk  of late  payment discourages  enterprises  from  selling 
products and services in other Member States since it increases uncertainty and the 
cost of doing business. A buyer's inability or unwillingness to pay on time is one of 
the major commercial risks in cross-border trade risk management, in particular for 
SMEs43. In that case, transaction costs are higher due to asymmetric information and 
insecurity about the market position and the solvency of a client established outside 
the  domestic  market44.  The  reverse  side  of  this  asymmetric  information  is  that  for 
many debtors the risk to reputation related to late payment is much lower when the 
creditor  is  established  in  another  Member  State  since  the  damage  to  reputation 
caused by late payment diminishes with distance. Late payment affects the business 
reputation  of  debtors  much  more  when  the  creditor  is  established  in  the  same 
Member  State.  Businesses  that  pay  their  invoices  promptly  usually  focus  more  on 
good  business  relationships,  tending  to  value  the  maintenance  of  relationships  with 
their suppliers and the company’s reputation as important. 

Trade  across  national  borders  amplifies  the  costs  of  offering  trade  credit  because 
language,  jurisdiction  and  access  to  solvency  data  tend  to  be  different  and,  thus, 
monitoring  costs  increase  while  the  chances  of  successfully  enforcing  payment  are 
lower.  Economic  studies  show  that  with  uncertainty  about  the  repayment  of  trade 
credit the output level of a profit-maximising firm is below the level where there is 

43 

44 

(http://www.cmrc.co.uk/surveys/business_credit_index/index.html),  medium 

According to the Business Credit Index of April 2008, published by the Credit Management Research 
Centre 
firms 
indicate an overdue period of 26 days for payment by non-domestic customers and an average payment 
the  COFACE  UK  Export  Survey  2007 
delay  of  21  days 
(http://www.cmrc.co.uk/surveys/export_survey/) indicates 27 overdue days for sales by UK companies 
to other EU Member States. 
Portes R. and Rey H. “The Determinants of Cross-Border Equity Flows”, Département et Laboratoire 
d'Economie  Théorique  et  Appliquée  de  l’Ecole  Normale  Supérieure,  Document  N°  2001-08;  Smith 
J.K.,  “Trade  Credit  and  Informational  Asymmetry”,  The  Journal  of  Finance,  Vol.  42,  No.  4  (Sep., 
1987), pp. 863-872. 

for  domestic 

sales; 

sized 

EN 

16 

   EN 

 
 
                                                 
revenue certainty45. As a result, trade credit insurance and other instruments coping 
with trade risk management are often used in cross-border trade. These instruments 
reduce  revenue  uncertainty  but  they  increase  production  costs  due  to  insurance 
premiums,  factoring,  buying  information  from  agencies,  using  collecting  agencies, 
bank  guarantees  etc.  The  cost  of  some  of  these  services  may  absorb  an  important 
fraction of the profit margin, in particular of small enterprises.  

The alternative to instruments coping with cross-border trade risk management is in-
house  risk  management.  This  either  requires  extra  working  capital  to  cope  with 
uncertainty  about  the  payment  of  the  commercial  debt,  or  obliges  the  supplier  to 
charge  higher  prices  to  cover  the  payment risk.  In  the  worst  case,  the  supplier  will 
refrain  from  selling  his  products  or  services  in  another  Member  State.  In  addition, 
due  to  the  cross-border  element,  the  administrative  costs  of  sending  reminders  and 
contacting  debtors  are  higher  when  the  debtor  is  established  in  another  Member 
State. 

Table 1.10: Impact of late payments on intra-EU trade: some examples 

A survey performed in late 2004 in the UK found that payment issues remained a deterrent to intra 
EU trade46. The issue of late payment has a bearing on the decisions of 46% of companies surveyed 
when they consider working with companies from other countries of the EU. 

In another survey47, more than 9000 companies interviewed in 22 European countries had indicated 
that payment uncertainty was seen as the major obstacle to cross-border trade.  

2.4. 

How is the problem likely to develop? 

The  regulatory  landscape  applicable  to  the  payment  process  and  claims  to  obtain 
payment  for  commercial  transactions  in  cross-border  cases  within  the  EU  is  being 
reshaped by new EU rules that recently entered into force or will soon apply. They 
are set out in detail in annex 4. The former will improve the speed and the efficiency 
of the payment process while the latter create new possibilities for judicial and extra-
judicial claims for the recovery of outstanding payments for cross-border commercial 
transactions  in  the  EU.  The  measures  on  judicial  and  extra-judicial  claims  are  only 
expected to have a minor impact on late payment in commercial transactions. Their 
impact is more downstream in the process, i.e. when creditors consider that litigation 
is the most appropriate method for obtaining payment which, by definition, will be 
late.  

2.5. 

Legal basis 

Late  payment  can  be  an  important  impediment  to  intra-EU  trade,  especially  for 
products and services to be sold in Member States where payment delays frequently 
occur  (see  section  2.3).  The  absence  or  ineffectiveness  of  national  rules  combating 
late  payment  could  therefore  unfairly  protect  national  economic  operators  against 
products and services coming from other Member States. Failure by a Member State 
to act or take sufficient action to prevent obstacles to the free movement of goods or 
services  originating  in  other  Member  States  caused  by  late  payment  by  private 

45 
46 
47 

Funatsu, H., “Export Credit Insurance”, Journal of Risk and Insurance, 1986, 53, 4, 680–92. 
Credit Management Research Centre, 2004, http://www.payontime.co.uk/news/update_advice.html. 
Intrum Justitia, European Payment Index 2004. 

EN 

17 

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individuals or national authorities is just as damaging to intra-Community trade as a 
positive trade-restrictive act. 

Therefore,  the  objective  of  ensuring  the  functioning  of  the  internal  market  by 
reducing obstacles to intra-EU trade arising from late payment cannot be sufficiently 
achieved  by  Member  States.  It  is  therefore  appropriate  in  accordance  with  the 
principle  of  subsidiarity,  by  reason  of  its  scale  and  effects,  to  achieve  it  at 
Community level. 

The fact that late payment in commercial transactions is still an impediment to intra-
Community  trade  means  that  any  legislative  proposal  would  have  to  be  based  on 
Article 95 of the Treaty, which is the legal basis of existing Directive 2000/35/EC. 
Non-legislative  action  would  be  based  on  Article  211  of  the  Treaty.  The 
proportionality of the options will be assessed later in this report. 

3. 

OBJECTIVES 

3.1. 

General objectives 

Any  Community  initiative  aiming  at  tackling  the  issue  of  late  payment  must 
ultimately: 

•  Be conducive to the achievement of the broader and overarching competitiveness 
goals enshrined in the renewed Lisbon Partnership for Growth and Jobs48, i.e. 
that  Europe  should become the  most competitive and dynamic knowledge-based 
economy in the world, capable of sustainable economic growth, creating more and 
better jobs, and developing greater social and regional cohesion; 

•  Significantly reduce administrative burdens on business, promote their cash flow 
and help more people to become entrepreneurs, in accordance with the principles 
of the Small Business Act49, in which the facilitation of SMEs’ access to finance 
and  the  development  of  a  legal  and  business  environment  supportive  to  timely 
payments in commercial transactions is earmarked as one of the 10 principles to 
guide  the  conception  and  implementation  of  SME  policies  both  at  EU  and 
Member State level. 

•  Facilitate the smooth functioning and the completion of the internal market via 
the elimination of related barriers to cross-border commercial transactions. In its 
vision for the 21st century single market, the Commission emphasized the need for 
a  strong,  innovative  and  competitive  internal  market50.  The  Single  Market 
review51 announced that the Commission would examine a range of initiatives to 

48 

49 

50 
51 

Commission  Communication:  Working  together  for  growth  and  jobs.  A  new  start  of  the  Lisbon 
strategy, COM(2005)24. 
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, COM(2008)394final of 25 June 2008. 
COM(2007) 60, 21.2.2007. 
Commission Communication: A single market for 21st century Europe, COM(2007) 724 final. 

EN 

18 

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foster the right conditions for small and medium-sized businesses and to improve 
framework conditions for businesses.  

Such  initiative  would  also  provide  an  important  impetus  to  overcome  the  current 
economic  crisis  by  contributing  to  the  implementation  of  the  European  Economic 
Recovery  Plan52  and  promoting  businesses’  cash  flow  in  order  to  reinforce  the 
competitiveness of European enterprises in the long term. 

3.2. 

Specific objectives 

Any  future  policy  should  provide  economic  operators  involved  in  commercial 
transactions  with  a  business  environment  that  promotes  the  timely  payment  of 
commercial debts whereby: 

–  The competitiveness of European businesses, in particular SMEs is improved by a 
substantial reduction in late payments for commercial transactions within the EU 
and by a reduction of excessively long periods of payment, in particular by public 
authorities; 

–  The discouraging effect of late payment in cross-border commercial transactions 

is reduced. 

3.3. 

Operational objectives 

Concretely, this translates into the following twin operational objectives: 

(1) 

(2) 

Confront  debtors  with  measures  that  successfully  discourage  them  from 
paying  late  or  from  requiring  excessively  long  contractual  payment  periods; 
and 

Provide  creditors  with  measures  that  enable  them  to  fully  and  effectively 
exercise their rights when paid late. 

4. 

POLICY OPTIONS 

4.1. 

Overview of policy options - Subsidiarity and proportionality 

It should be noted that, for some important aspects of the three first problem causes 
set  out  in  section  2.2,  the  EU  does  not  necessarily  have  the  power  to  act.  Certain 
problems related to the structure of national or regional markets should be dealt with 
by Member States while, as regards the business cycle, most of the economic policy 
levers  are  in  the  hands  of  the  Member  States  so  that  no  overall  solution  for  all 
problem  causes  can  be  found  at  EU  level.  In  addition,  certain  options  had  to  be 
in  Annex  5. 
discarded  at  an  early 

set  out 

reasons 

stage 

the 

for 

52 

COM(2008)800, 26.11.2008. 

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19 

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Problem causes 

2.2.1: the market 
structure 

2.2.2: the business 
cycle 
2.2.3: access to 
finance and 
budgetary 
constraints  

2.2.4: the internal 
organisation of 
creditors and 
debtors 

2.2.5: The absence 
of effective and 
efficient remedies 

Table 1.11: Overview of all policy options 

(1) Discarded options (see 
Annex 5) 

(2) Non-legislative options 

(3) Legislative options 

- Option 3a: Full 
harmonisation of payment 
periods  

- Option 2a: the 
organisation of awareness 
raising activities targeted at 
businesses 
- Option 2b: the 
organisation of awareness 
raising activities targeted at 
SME organisations  

- The creation of a 
European Fund aimed at 
providing finance to SMEs. 

- A new programme to 
enhance SME capabilities; 
- Promoting the use of 
Escrow Facilities (non-
legislative option); 
- Promoting the use of 
securities (non-legislative 
option); 
- Developing and 
Promoting Credit and 
Financial Management 
Programmes (non-
legislative option). 
- Repeal of the Directive; 
- Exempt income in the 
form of late payment 
interest from VAT. 

- Option 2c: the publication 
of information on bad 
debtors; 
- Option 2a: the 
organisation of awareness 
raising activities targeted at 
businesses 
- Option 2b: the 
organisation of awareness 
raising activities targeted at 
SME organisations  

- Option 3a: Full 
harmonisation of payment 
periods  

- Option 3f: Strengthen the 
role of representing 
organisations 
- Option 3g: Encourage 
timely payment by 
compulsory information of 
debtors 

- Option 3b: Increase of the 
statutory interest rate 
- Option 3c: Abolition of 
the threshold of €5 
- Option 3d: introduction of 
a “Late Payment Fee” 
- Option 3e: introduction of 
the “Late Payment 
Compensation” 

Consequently,  this  impact  assessment  will  concentrate  primarily  on  the  problem 
causes on which the EU has the right to act. The legislative options are predicated on 
the principle that the EU should only legislate to the extent necessary. Regarding the 
nature  and  the  extent  of  Community  action,  the  options  leave  as  much  scope  for 
national  decision  as  possible,  consistent  with  securing  the  aim  of  the  measure  and 
observing the requirements of the Treaty. Well established national arrangements and 
the organisation and working of Member States' legal systems should be respected. 
None of the options is exclusive. 

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Table 1.12: Overview of policy options subjected to an in-depth impact analysis 

Operational 
objective 

(1) Baseline: No change 
(see annex 4) 

(2) Non-legislative options 

(3) Legislative options 

Provide creditors 
with measures that 
enable them to 
fully and 
effectively exercise 
their rights when 
paid late. 

Confront debtors 
with measures that 
successfully 
discourage them 
from paying late or 
from requiring 
excessively long 
contractual 
payment periods. 

- SEPA will improve 
efficiency of payments  
- Debt collection agencies 
will benefit from Services 
Directive 2006/23/EC  
- Access to alternative 
dispute resolution will be 
improved by Directive 
2008/52/EC  
- Regulation 1896/2006 on 
European order for payment 
procedure  
- Regulation 805/2004 
creating a European 
Enforcement Order for 
uncontested claims  
- Regulation (EC) No 
44/2001 on judgments in 
civil and commercial 
matters  

4.2. 

Baseline option: no policy change 

- Option 2a: the 
organisation of awareness 
raising activities targeted at 
businesses 
- Option 2b: the 
organisation of awareness 
raising activities targeted at 
SME organisations  

- Option 2c: the publication 
of information on bad 
debtors 

- Option 3a: Full 
harmonisation of payment 
periods  
- Option 3b: Increase of the 
statutory interest rate 
- Option 3c: Abolition of 
the threshold of €5 
- Option 3d: introduction of 
a “Late Payment Fee” 
- Option 3e: introduction of 
the “Late Payment 
Compensation” 
- Option 3f: Strengthen the 
role of representing 
organisations 
- Option 3g: Encourage 
timely payment by 
compulsory information of 
debtors 

The  baseline  option  consists  of  the  measures  outlined  in  section  2.4  and  annex  4. 
They  only  relate  to  the  payment  process  and  claims  to  obtain  payment  for 
commercial  transactions  in  cross-border  cases  within  the  EU.  Consequently,  any 
further  policy  options  should  only  focus  on  measures  encouraging  timely 
payment,  without  considering  the  technical  aspects  of  the  payment  process  or  late 
payment  made  following  debt  collection  measures  by  third  parties,  alternative 
dispute resolution or judicial proceedings.  

4.3. 

Non-legislative options 

4.3.1.  Option 2a: The organisation of awareness raising activities targeted at businesses 

Despite certain weaknesses of the Directive, its provisions could be disseminated to a 
wider  audience  of  economic  operators  so  that  they  can  fully  grasp  its  potential 
benefits. 

This could be done in the first place through guides and specific websites specifically 
addressed  to  economic  operators  and  other  stakeholders  like  SME  organisations.  A 
dedicated  section  on  late  payment  could,  for  example,  be  included  in  the  SME 
portal53  and  on  the  Your  Europe–Business  Portal54.  Other  more  tailor-made 
awareness  raising  activities,  like  conferences  and  seminars,  could  complement  the 
guides  and  websites  and  could  be  organised  in  cooperation  with  the  Enterprise 
Europe  Network55.  Awareness-raising  activities  should  also  cover  national  debt 

53 
54 
55 

http://www.enterprise-europe-network.ec.europa.eu/index_en.htm 
http://ec.europa.eu/enterprise/sme/index_en.htm 
http://ec.europa.eu/youreurope/business/index_en.htm 

EN 

21 

   EN 

 
 
                                                 
settlement  procedures.  Finally,  exchange  of  best  practice  between  Member  States 
could be promoted. 

4.3.2.  Option  2b:  The  organisation  of  awareness-raising  activities 

targeted  at 

organisations representing SMEs  

The  Directive  provides  for  the  possibility  for  organisations  representing  SME’s  to 
take  action  with  regard  to  unfair  clauses.  Until  now,  there  are  very  few  indications 
that  these  representative  organisations  have  actually  fully  exploited  this  possibility 
which could be highlighted in awareness-raising activities specifically targeting SME 
representative  organisations.  These  would  aim  to  prevent  the  inclusion  of  grossly 
unfair  clauses  in  future  contracts  through,  inter  alia,  the  application  of  competition 
rules  to  cases  of  unfair  contract  clauses  and  excessive  use  of  dominance  by  large 
customers.  They  should  also  cover  codes  of  best  practice  that  identify  abusive 
practices and unfair terms.  

4.3.3.  Option 2c: Publication of information on bad debtors 

Detailed  information  on  the  identity  of  bad  debtors  is  currently  not  made  publicly 
available  by  companies.  Under  this  option,  companies  would  publish  (either 
voluntarily or by law) detailed information on bad debtors in their annual returns, so 
that regular late payers could become more easily identifiable56.  

4.4. 

Legislative options 

4.4.1.  Option 3a: Full harmonisation of payment periods  

Under  this  option,  payment  periods  together  with  the  calculation  and  timing  of 
interest chargeable on late payment would be harmonised in all contracts to protect 
the weaker party during contract negotiation and in contracts with public authorities. 
A maximum payment period of 30 days (corresponding to the “default period” under 
the  current  Directive)  would  apply  to  commercial  contracts  across  Member  States. 
This  option  presupposes  that  current  rules  on  interest  for  late  payment  are 
maintained.  

4.4.2.  Option 3b: increasing the "margin” interest rate 

The objective of this measure would be to compensate the creditor while creating an 
incentive for the debtor to change behaviour, resulting in improvements to payment 
practice. It would involve a substantial increase in the “margin” interest rate for late 
payment above the 7% currently in force. For the purposes of this assessment, it is 
proposed  that  the  rate  introduced  be  the  ECB  rate  plus  a  “margin”  interest  rate  of 
12%. 

56 

This  option  does  not  address  the  transparency  of  debtors’  assets  in  the  European  Union  in  the 
framework  of  the  enforcement  of  judicial  decisions  in  the  European  Union,  about  which  the 
Commission published a Green Paper COM(2008)128 on 6.3.2008. 

EN 

22 

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4.4.3.  Option 3c: the abolition of the threshold of €5 

The  Directive  specifies  that  Member  States  may  exclude  claims  for  interest  of  less 
than  €5.  A  stronger  deterrent  effect  would  be  achieved  if,  in  all  cases,  the  interest 
could  be  imposed  on  the  first  day  of  a  payment  becomes  overdue.  Therefore,  the 
threshold of €5 would be repealed under this option. 

4.4.4.  Option 3d: the introduction of a “Late Payment Fee” 

This option introduces a fixed “Late Payment Fee” for the recovery of administrative 
costs  and  compensation  for  internal  costs  incurred  due  to  late  payment.  This 
minimum fee would be cumulated with interest for late payment and would become 
payable automatically from the first day after payment becomes overdue:  

Table 1.13: Late Payment Fee (option 3d) 

Amount of late payment 

Not exceeding €1000 
Exceeding €1000  

Fixed minimum amount to be paid by the 
creditor 
€40 
€70 

These  amounts  are  slightly  progressive  since  more  important  debts  usually  require 
more  attention  and  corresponding  credit  management  time,  and  a  more  formal 
approach  to  cash  collection  (formal  reminders,  legal  counselling,  etc).  For  higher 
amounts of late payment, senior management levels and/or external accountants, debt 
collection services or solicitors are more likely to be involved. 

4.4.5.  Option 3e: the introduction of a “Late Payment Compensation” 

A  sufficiently  high  financial  compensation  for  the  recovery  costs  related  to  late 
payment can be a serious discouragement, in particular for smaller debts. Under this 
option, the compensation would amount to 1% of the amount due in order to recover 
the  costs  of  involving  senior  management  levels  and/or  external  accountants,  debt 
collection services or solicitors. This compensation would also be cumulated with the 
interest for late payment. It could be increased in case of further delays. 

4.4.6.  Option 3f: Strengthen the role of representative organisations 

At the moment, in the Directive the role of organisations officially recognised as, or 
having  a  legitimate  interest  in,  representing  SMEs  is  fairly  limited:  they  may  take 
action before the courts or before competent administrative bodies under national law 
on  the  grounds  that  contractual  terms  drawn  up  for  general  use  are  grossly  unfair 
within  the  meaning  of  Article  3(3),  so  that  appropriate  and  effective  measures  are 
taken to prevent the continued use of such terms57. 

Under  this  option,  representative  organisations  would  also  be  entitled  to  claim 
payment of invoices that should have been paid and all related amounts (e.g. interest 
for late payment) through a representative action. This would be an action brought by 
a representative organisation on behalf of businesses who are not themselves party to 
the  action,  and  aimed  at  obtaining  damages  for  the  individual  harm  caused  to  the 

57 

See Annex 7. 

EN 

23 

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interests of all those represented (and not the representative entity itself). It would be 
left to the Member States to set criteria to define which organisations would qualify 
but  these  could  include  professional  associations,  public  authorities  specifically 
responsible for SME protection, chambers of commerce and industry, etc.  

5. 

ANALYSIS OF IMPACTS 

All quantitative data about payment delays used in this impact assessment are based 
on different types of surveys and interviews. Surveys usually collect information on 
the perception of late payment as a problem and trends in the number and value of 
accounts paid on time. The data collected could potentially suffer from selection bias 
or respondents’ bias towards the subject whereby, for example, respondents consider 
that  payments  following  a  contested  claim  or  a  judgement  are  also  late  payments. 
Businesses that are sensitive to the payment behaviour  of their customers  are more 
likely  to  indicate  that  payments  are  “late”  than  businesses  that  have  the  financial 
strength to absorb some variations in payment times and/or anticipate actual payment 
behaviour.  Despite  all  efforts,  there  are  no  hard  scientific  data  based  on  a  detailed 
analysis  of  all  payments  made  by  and  to  a  reliable  sample  of  economic  operators 
throughout the EU.  

Moreover, the Directive is an optional instrument for economic operators in so far as 
it does not oblige them to claim interest for late payment. The directive also operates 
in a field where many other factors could influence the payment performance in B2B 
transactions58.  The  regulatory  landscape  applicable  to  the  payment  process  and 
judicial claims to obtain payment for commercial transactions in cross-border cases 
within the EU is being reshaped by new EU rules that recently entered into force or 
will soon apply. It is hard to account for interconnection and spill-over effects in the 
baseline  scenario.  Thus,  it  is  only  possible  to  provide  indicative  quantitative 
estimates  of  the  possible  economic  and  social  impacts  of  any  given  option. 
Therefore,  the  analysis  is  mainly  qualitative.  It  should  be  noted  that  none  of  the 
options would have an environmental impact or third country implications. 

Some  causes  of  problems  where  the  EU  does  not  have  the  power  to  act  will 
nevertheless  influence  the  uptake  of  certain  options.  The  market  structure  and  the 
position  of  an  economic  operator  in  a  market  will  determine  to  a  large  extent  his 
willingness to take action against a late paying debtor and to run the risk of damaging 
a  business  relationship  which  might  be  worth  several  thousand  Euros.  There  are 
many other similar individual factors which will all be neutralised whenever possible 
during  this  impact  assessment.  For  the  same  reason,  it  was  impossible  to  identify 
direct social impacts. 

The policy options are assessed in the light of the baseline  option in terms of their 
effectiveness59, efficiency60 and consistency61  

58 
59 
60 

61 

See Table 3.11 in Annex 3. 
The extent to which options can be expected to achieve the objectives of the proposal. 
The  extent  to  which  objectives  can  be  achieved  for  a  given  level  of  resources/at  least  cost  (cost-
effectiveness). 
The extent to which options are likely to limit trade-offs across the economic, social, and environmental 
domain. 

EN 

24 

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5.1. 

Option 1: baseline option 

The  base-line  option  comprises  a  number  of  recently  adopted  measures  that  will 
quicken the payment process and introduce new means of pursuing judicial and 
extra-judicial  claims  for  the  recovery  of  outstanding  payments  for  commercial 
transactions  in  cross-border  cases  within  the  EU.  An  important  side-effect  of  these 
measures is their possible positive influence on the payment attitude of debtors. 

It  should  however  be  noted  that  these  measures  will  have  no  impact  on  late 
payments  for  which  no  debt  collection  by  third  parties,  alternative  dispute 
resolution or judicial proceedings are initiated. 

Moreover, the ambiguity arising from certain provisions of the Directive will not 
be  fixed  under  this  option.  Examples  of  unclear,  inextricable  or  unmanageable 
provisions  that  remain  unsolved  under  this  option  include  the  calculation  of  the 
applicable  interest  rate,  the  nature  and  extent  of  “retention  of  title”,  the  types  of 
commercial  transactions  covered  by  the  Directive,  the  definition  of  “relevant 
recovery costs” and the possibility of compound interest. 

5.2. 

Option  2a  (non-legislative):  The  organisation  of  awareness  raising  activities 
targeted at businesses 

The  main  advantage  of  awareness-raising  activities  resides  in  their  flexibility  and 
the scope for active participation by all stakeholders. 

Since  awareness  is  not  the  most  important  impediment  to  claiming  interest  for  late 
payment,  the  most  important  inconvenience  of  this  option  is  its  very  minimal 
efficiency. Experience shows that these activities can take several years and thus tie 
up substantial resources, certainly when they should reach (new) businesses in all 27 
Member  States.  Moreover,  following  the  transposition  of  Directive  2000/35/EC, 
national authorities and representative organisations have already organised, and are 
still  organising,  numerous  awareness-raising  activities  targeted  at  businesses, 
especially  SME’s.  There  is  a  significant  risk  that  any  future  similar  activities  will 
also fail to reach an important part of this specific target audience. It is highly likely 
that the audience reached will remain fairly small: about 13% of EBTP respondents 
and  11%  of  IPM  respondents  never  claim  interest  for  late  payment  due  to 
unawareness about the right to claim interest. 

Another  negative  aspect  of  this  option  is  its  very  limited  effectiveness:  awareness-
raising  activities  would  only  address  a  few  of  the  problems  set  out  above.  Many 
problems  are  inherent  in  the  text  of  the  Directive  and  awareness-raising  cannot 
resolve  these.  Any  attempted  clarification  of  its  provisions  would  have  no  binding 
value, which would add an element of uncertainty. Awareness-raising and informal 
guidelines  have  only  de  facto,  but  no  legal,  force.  Legal  force  may,  however,  be 
required in critical cases. Moreover, this option would have no impact on any other 
parties than enterprises. 

Table 1.14: Summary of impacts of option 2a  

Effectiveness 
Efficiency 
Consistency  

No: no impact on debtors and minimal impact on creditors 
No: requires too many resources for a very uncertain result. 
Yes: trade-offs across other domains could not be identified. 

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25 

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5.3. 

Option  2b  (non-legislative):  The  organisation  of  awareness  raising  activities 
targeted at organisations representing SMEs 

The  possibility  for  organisations  representing  SME’s  to  take  action  with  regard  to 
unfair  clauses  could  be  highlighted  in  awareness  raising  actions  that  specifically 
target  these  organisations.  The  advantage  of  this  option  is  the  flexibility  of  these 
awareness  raising  activities  and  the  possibility  of  an  active  participation  by  all 
stakeholders,  combined,  with  the  fairly  limited  number  of  these  organisations 
throughout the EU. Therefore, it should be fairly easy to reach them. It is estimated 
that the cost for the Commission would amount to €300,000 per year. 

However, there are several important uncertainties regarding the effectiveness of 
this option. A prerequisite for these awareness raising actions is that Member States 
have  put  in  place,  in  the  interests  of  creditors  and  of  competitors,  adequate  and 
effective  means  to  prevent  the  continued  use  of  terms  which  are  grossly  unfair 
(Article  3(4)).  The  success  of  this  option  depends  on  an  active  participation  of  the 
competent authorities in Member States responsible for the implementation of these 
adequate and effective means. In addition, awareness raising activities do not solve 
the fundamental problem of the limited role of representative organisations laid down 
in the Directive. Their role, as laid down in the Directive, does not concern ongoing 
contracts.  This  limitation  may  discourage  businesses  from  reporting  grossly  unfair 
clauses  to  the  representative  organisations.  In  addition,  these  organisations  may 
refrain from taking action in cases where they represent both suppliers and clients in 
a particular sector and where they may be faced with an internal conflict of interests. 

Table 1.15: Summary of impacts of option 2b  

Effectiveness 
Efficiency 
Consistency 

No: objectives are unlikely to be achieved. 
Yes: fairly low budgetary cost for the EU. No other costs. 
Yes: trade-offs across other domains could not be identified. 

5.4. 

Option 2c (non-legislative): Publication of information on bad debtors 

The  publication  of  detailed  figures  about  bad  debtors  in  the  accounts  receivable 
would  certainly  constitute  valuable  information  for  other  businesses,  including 
credit  reference  organisations.  This  option  would  enable  creditors  to  identify 
potential  debtors  in  a  way  that  does  not  directly  threaten  their  commercial 
relationship with them. Such publication could warn other economic operators of the 
risks of doing business with persistent late payers. This would enable companies to 
focus  time  in  negotiating  contracts  with  “higher  risk  customers”,  as  part  of  a  risk 
based  strategy.  It  could  also  help  reduce  the  number  of  grossly  unfair  clauses  in 
contracts.  The  additional  element  of  “naming  and  shaming”  of  persistent  late 
payers under this option would provide an incentive to companies to maintain their 
reputation  by ensuring that they pay  their  accounts  on time. Similarly, the measure 
would  facilitate  the  consolidation  of  publicly  available  information  on  poor-paying 
public institutions and industry sectors and would thus provide valuable information 
for  organisations  lobbying  government  and  industries  for  better  performance  as 
regards payment times. 

There  seems  to  be  more  support  for  this  preventive  measure  from  large  companies 
than  smaller  companies.  The  measure  could  have  a  considerable  impact  on  major 
companies  if  they  believed  that  their  reputations  could  be  damaged  by  adverse 

EN 

26 

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publicity.  It  could  become  an  issue  of  public  interest,  as  part  of  overall  social 
responsibility. 

However, this option creates more problems than it would solve: 

•  There are many practical drawbacks. Firstly, the quality of reporting on disputed 
cases  and  cases  in  which  a  business  went  through  a  short  difficult  period  needs 
particular  attention.  Secondly,  businesses  with  a  high  number  of  invoices  may 
appear  to  have  paid  a  larger  number  of  invoices  late,  even  though  the  actual 
proportion  of  its  total  is  low.  Thirdly,  many  businesses,  and  especially  SME’s, 
may  be  reluctant  to  “name  and  shame”  individual  creditors  for  business 
relationship reasons or out of fear of possible claims for damages for unjustified 
reporting. Fourthly, this option could oblige businesses to disclose commercially 
sensitive  information  about  their  business  relations  or  their  cost  components. 
Fifthly, the onus of reporting and dealing with the issue of late payments would 
rest more heavily on small companies which, in most cases, are the victims of the 
late payments and not the perpetrators62. This at a time when strenuous efforts are 
being made under our Better Regulation policies to reduce the burden of corporate 
reporting requirements on SMEs. 

•  The  information  would  be  scattered  in  thousands  of  annual  accounts  and  would 
therefore  not  be  easily  accessible  to  other  enterprises,  except  credit  rating 
agencies.  That  implies  that  economic  operators  would  have  to  use  credit  rating 
agencies  to  obtain  information  on  the  payment  performance  of  possible  clients. 
The  alternative  would  be  the  appointment  by  every  Member  States  of  a  body  to 
gather  information  on  bad  debtors  and  make  this  information  publicly  available. 
This  would  generate  extra-costs  for  the  Member  States.  Considering  that  the 
development  of  a  national  database  would  cost  a  minimum  of  €3  million  per 
Member  State  and  that  maintenance  and  updating  as  well  the  preparation  and 
dissemination  of  guidelines,  plus  the  provision  of  training  to  tax  services  and 
accountants  would  at  least  amount  to  €500,000  per  year  per  Member  State,  the 
total cost for the entire EU could easily amount to €90 million or more during the 
start-up  phase.  Moreover,  this  measure  would  require  legislative  changes  in 
national  accounting 
the 
implementation  of  these  measures  within  the  Member  States  could  call  into 
question the reliability of the data in case of cross-border commercial transactions.  

rules.  Substantial  national  differences  between 

•  Above  all,  the  additional  administrative  cost  for  many,  especially  small, 
businesses  would  be  disproportionately  high.  The  administrative  effort  to 
consolidate  the  information  from  myriad  small  accounts  would  be  very 
burdensome  for  businesses  since  they  would  be  obliged  to  gather  information 
during  the  entire  year  to  give  a  real  picture  of  which  companies  were  the  worst 
offenders  in  late  payment.  The  estimated  administrative  costs  to  companies  of 

62 

of 

was 

also 

type 

measure 

authorities: 
This 
http://www.entemp.ie/publications/enterprise/2007/THIRDPROGRESSREPORT(FINALVersionof10D
ecember2007).pdf. They came to the conclusion that it seems likely that small companies would derive 
significantly less benefit from such a provision than may have been envisaged in the beginning. This 
report calls into question the balance between that benefit and the potential adverse impacts that would 
be associated with implementation of the measure, including the additional regulatory burden for those 
companies that would be required to file the information specified in their annual accounts. 

assessed 

Irish 

the 

by 

EN 

27 

   EN 

 
                                                 
meeting the reporting requirements are summarised in the next table. The bulk of 
these costs would be borne by SMEs rather than by the large companies who are 
problem.
generally 

considered 

root 

the 

the 

be 

of 

to 

EN 

28 

   EN 

 
Table 1.16: Costs to companies from reporting requirements 

Number of companies 
Hours per undertaking on retrieving information 
Hours per external for checking and adjusting 
Total costs (€m) 

All 27 EU MS 

SME 
23,000,000 
20 
10 
25,300,000,000 

Large 
41,000 
30 
15 
86,100,000 

The impacts of this option can be summarised as follows: 

Table 1.17: Summary of impacts of option 2c  

Effectiveness  Doubtful: possible preventive effect on creditors but many practical drawbacks for 

Efficiency 
Consistency 

its implementation 
No: very high administrative costs for businesses. 
Yes: trade-offs across other domains could be not identified. 

5.5. 

Option 3a (legislative): Harmonisation of payment periods 

At first glance, the advantages of this option are numerous. Harmonised payment 
periods  would  put  an  end  to  the  practice  of  circumventing  the  current  rules 
combating  late  payment  by  contracts  containing  very  long  payment  periods.  This 
option would also prevent the inclusion of grossly unfair contractual payment terms 
in  contracts.  By  introducing  standard  payment  periods,  the  measure  would  address 
the inherent lack of understanding and expertise (especially on the part of SMEs) in 
identifying  grossly  unfair  contractual  clauses  and  contesting  them  before  entering 
into a contract. 

Moreover,  some  argue  that  harmonised  payment  periods  would  promote  (quicker) 
contracts between undertakings in different Member States. It would also encourage 
enterprises to participate in public procurement procedures in other Member States. 
The potential costs associated with a loss of contractual freedom could be offset by 
the reduction in administrative costs in applying European law. The costs presently 
incurred  in  cross  border  trade  include  duplicating  documents  for  different  legal 
systems  and  consulting  legal  experts  for  advice.  More  than  67%  of  EBTP 
respondents and almost 80% of IPM respondents support this possibility. 

5.5.1.  Option 3a/1: The harmonisation of payment periods between economic operators 

Analysis  of  a  possible  harmonisation  of  payment  periods  between  economic 
operators  reveals  that  it  would  have  many  drawbacks  and  could  be  contrary  to  the 
principles of proportionality and subsidiarity: 

•  This option may not be very effective in reality. Late payment would be a breach 
of contract which would not necessarily be acted on by the creditor out of fear of 
damaging the commercial relationship with the client, or due to the administrative 
burden of claiming interest, insufficient resources (in particular of SMEs) or lack 
of  knowledge  how  to  calculate  late  payment  interest.  A  breach  of  contract  does 
not necessarily mean that expenses incurred in suing the debtor can be recovered. 
Even  where  there  is  a  clear  breach  of  contract,  chasing  late  paying  clients  or 
charging  interests  for  late  payments  generate  administrative  costs  that  many 

EN 

29 

   EN 

 
 
 
businesses wish to avoid. Moreover, the current rules define late payment already 
as “exceeding the contractual or statutory period of payment” (Article 2(2) of the 
Directive)  meaning  that  all  late  payments  are  a  consequence  of  a  breach  of 
contract. 

•  The payment period is typically one of the negotiable items of a contract. It is a 
part  of  trade  credit  between  enterprises63  which,  as  such,  does  not  necessarily 
constitute  a  problem  for  the  creditor  as  long  as  he  knows  when  he  can  expect 
payment.  It  is  important  to  bear  in  mind  that  trade  credit,  i.e.  the  granting  to  a 
customer by a supplier of goods or services of a deferral in the time to pay, is a 
tool  for  many  small  businesses64.  Most  commercial 
major  competitive 
transactions  are  made  on  credit  terms  and  trade  credit  is  an  important  source  of 
funding  for  small  businesses.  Studies  show  that  small  firms  extend  trade  credit 
more  aggressively  than  medium  and  large  firms.  This  behaviour  even  occurs  in 
those  firms  in  financial  distress.  Larger  firms,  with  better  access  to  alternative 
internal  and  external  financing  and  with  a  lower  cost,  use  less  credit  from 
suppliers. Moreover, firms with higher growth opportunities use more trade credit 
for financing sales growth65. 

Table 1.18: Trade Credit as a component of business strategy 

Market signalling 
and Differentiation 

Customer Loyalty & 
Information 

Price  Discrimination 
& Price competition 

Cost Leadership 

Managing 
Uncertainties 

Credit  acts  as  an  implicit  guarantee  of  product  quality.  Available 
credit  terms  provide  a  ‘quality  signal’  to  potential  buyers.  Offering 
credit  may  be  a  key  factor  that  differentiates  one  supplier  among 
competing suppliers. 
Trade credit can be used to ‘tie-in’ customers and encourage repeat 
purchase  i.e.  ‘building  relationships’.  Extending  credit  generates 
potentially useful information on customers. 
Offering  credit  terms  provides  more  opportunities  for  varying 
effective  price  to  buyers  with  different  elasticities  of  demand  or 
different  credit  risk.  Credit  terms  can  be  an  important  element  of 
price competition and the ‘marketing-mix’ in competitive markets 
Offering a package of both product and finance that is cheaper than a 
buyer  negotiating  with  two  parties  (supplier  &  financier)  may 
generate profitable sales. The supplier may generate profit from both 
activities  -  profit  margin  on  the  product;  (premium)  interest  on  the 
finance. 
Using  and  extending  trade  credit  can  be  used  to  reduce  the 
uncertainties  in  trading  relationships  and  minimise  ‘transaction 
costs’. To make money available, firms have to convert liquid assets 
into  cash.  The  costs  for  doing  this  may  be  greater  if  conversion  is 
frequent  and/or  for  small  amounts,  consequently  firms  have  a 
demand  for  precautionary  cash  balances.  Trade  credit  reduces  the 
need  for  this,  particularly  where  there  is  uncertainty  in  the  trade 

63 

64 

65 

Summers  B.  and  Wilson  N.,  “Trade  credit  and  customer  relationships”,  Managerial  and  Decision 
Economics,  2003,  Vol.  24,  6-7;  See  also  Ng  C.K.,  Smith  J.K.  and  Smith  R.L.,  “Evidence  on  the 
Determinants of Credit Terms Used in Interfirm Trade”, The Journal of Finance, 1999, Vol. 54, 3, p. 
1109. 
Wilson N., Le Duc L.T. and Wetherhill P., "Trade Credit and Monetary Policy in the UK: An Empirical 
Investigation"  (December  2004).  Available  at  SSRN:  http://ssrn.com/abstract=675630;  Rodríguez-
Rodríguez  O.M.,  “Trade  Credit  in  Small  and  Medium  Size  Firms:  An  Application  of  the  System 
Estimator With Panel Data”, Small Business Economics, 2006., Vol. 27, 2-3. 
Garcia-Teruel  P.J.  and  Martinez-Solano  P.,  “A  dynamic  perspective  on  the  determinants  of  accounts 
payable”, Department of Management and Finance, Faculty of Economics and Business, University of 
Murcia (Spain), October 2006. 

EN 

30 

   EN 

 
                                                 
exchange.  It  can  therefore  help  the  firm  develop  an  environment 
conducive to innovation. 

Source: Wilson N., “An Investigation into Payment Trends and Behaviour in the UK: 1997-
2007”, Department for Business, Enterprise & Regulatory Reform and CMRC, 2008. 

•  The  rules  combating  late  payment  do  not  yet  fully  harmonise  national  laws  but 
rather  focus  on  compliance  with  some  minimum  requirements  that  apply  across 
the  EU.  Currently,  businesses  are  not  obliged  to  apply  these  rules  and  to  claim 
their rights. This fundamental principle would be dropped for a more compulsory 
approach  that  would  deprive  economic  operators  of  a  valuable  commercial 
element.  Furthermore,  many  businesses  will  try  to  circumvent  these  rules  by 
slicing  a  limited  number  of  contractual  payments  into  a  much  higher  number  of 
contractual  payments  which  will 
the  administrative  burden  for 
businesses. 

increase 

•  The  adjustment  and  compliance  costs  of  this  option  could  be  considerable  for 
enterprises. They would be obliged to adapt their new contracts to the harmonised 
provisions.  This  may  significantly  alter  some  companies’  cash  flows  both 
positively and negatively where they have been used to dealing with contractual 
provisions  involving  long  payment  periods66.  It  is  important  to  recognise  that 
many  of  these  negotiated  elements  are  part  of  the  competitive  process  by  which 
buyers  and  sellers  interact  so  that  the  benefits  stemming  from  freedom  of 
negotiation  may  compensate  for  the  costs  related  to  barriers  to  trade  and  other 
problems  already  explained  (i.e.  lack  of  expertise  on  negotiation,  time,  etc.). 
Moreover,  establishing  statutory  contract  periods  and  terms  within  contracts 
means  a  loss  of  contractual  freedom  by  removing  the  ability  of  companies  to 
compete through payment periods offered to clients. This could in turn put more 
pressure on other aspects of contract negotiation where larger companies can still 
exercise  significant  influence  over  small  company  suppliers,  the  most  obvious 
being price. Debtors might also negotiate different payment terms and payment by 
instalments in response to a harmonisation of payment periods.  

It is difficult to quantify precisely the costs and benefits of this option since a number 
of  factors  are  too  uncertain  to  be  calculated,  e.g.  the  potential  loss  in  turnover,  the 
contract  negotiation  costs,  the  financial  consequences  of  reduced  trade  credit,  etc. 
Tables  3.20  to  3.27  in  Annex  3  show  scenario  calculations  for  a  harmonization  of 
payment  terms  to  30  days  across  the  board  with  4  different  scenarios:  a  baseline 
scenario  (current  payment  terms  and  late  payment  patterns),  an  optimum  scenario 
(reduction of payment terms to 30 days maximum and no late payment, i.e. effective 
payment equal to payment term), a realistic scenario (reduction of payment terms to 
30  days  maximum  and  a  proportional  reduction  of  late  payment  whereby  late 
payment expressed in days represents the same proportion to the contractual payment 
term than in the baseline scenario) and a worst scenario (reduction payment terms to 
delays). 
30 

but  without 

reduction 

effective 

payment 

days 

of 

a 

66 

See Table 3.12 in Annex 3. 

EN 

31 

   EN 

 
                                                 
Table 1.19: scenario calculations for B2B regarding the proposal of harmonization of payment 
terms to 30 days across the board - Net effect (in mio EURO - gains +, loss -)) 

Baseline scenario 
(Table 3.21) 

Optimum 
scenario (Table 
3.23) 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

-2,682.4

--

-1,557.0

-762.9

-7,389.0

-138.4

-1,549.7

-1,906.7

-8,518.5

-13,264.7

-14,369.5

-163.2

-275.3

-317.9

--

-2,105.3

--

-3,565.9

-1,161.7

-3,404.3

-2,694.0

--

--

-184.3

-529.6

-1,160.0

-17,219.0

Realistic scenario 
(Table 3.25) 

Worst scenario 
(Table 3.27) 

2,563.9 

-1,446.8

-- 

0.0 

0.0 

0.0 

0.0 

1,485.4 

7,391.9 

37,662.1 

26,931.9 

48,434.9 

405.0 

0.0 

12.7 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

--

0.0

0.0

0.0

0.0

-767.8

-3,963.7

-22,933.2

-15,780.5

-27,344.9

-212.3

0.0

-6.0

--

0.0

--

0.0

0.0

0.0

2,988.0 

-1,394.8

-- 

-- 

40.4 

0.0 

0.0 

--

--

-23.0

0.0

0.0

4,749.2

--

1,562.7

689.3

7,461.5

51.6

2,683.1

8,088.9

41,204.1

35,122.0

54,861.8

479.3

--

328.1

--

1,666.7

--

2,574.9

727.4

3,355.4

4,730.7

--

--

218.8

0.0

664.0

21,531.5

5,878.4 

-3,101.6

Total 
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 
3.3), and Eurostat turnover figures 

133,794.6 

-76,974.7

192,750.9

-84,919.2

Table 1.19 shows that the potential benefits of this option would be very impressive 
under  the  optimum  and  realistic  scenario,  and  that  the  situation  would  slightly 
improve in the worst scenario. The probability of the optimum scenario is, however, 
very low. 

In any event, it is certain that the harmonisation of payment periods for commercial 
transactions would undermine the possibility for smaller firms to receive trade credit 
from  their  suppliers,  in  particular  during  a  period  of  monetary  contraction. 

EN 

32 

   EN 

 
 
 
Consequently,  the  impact  of  this  option  would  be  negative  for  those  European 
businesses using trade credit, especially for SMEs67. 

Table 1.20: Summary of impacts of option 3a/1 

Effectiveness  Yes: likely to lead to less late payments 
Efficiency 
Consistency 

No: Considerable compliance and adjustment costs. 
No: loss of contractual freedom by removing the ability of companies to compete 
through payment periods offered to clients. This could in turn put more pressure on 
other aspects of contract negotiation where larger companies can still exercise 
significant influence over small company suppliers 

5.5.2.  Option 3a/2: the harmonisation of the periods for payment by national authorities to 

economic operators 

A  possible  harmonisation  of  payment  periods  by  national  authorities  to  economic 
operators  reveals  that  it  would  not  have  any  of  the  drawbacks set out in section 
5.5.1: 

•  The fear of damaging the commercial relationship with the client should not exist 
in contracts concluded with national authorities. The risk that a claim for interest 
for  late  payment  would  have  a  negative  effect  on  the  chance  of  winning  a  new 
contract  in  another  procurement  process  is  minimal.  The  public  procurement 
directives68 and the national rules on procurement procedures below the threshold 
already provide a number of procedural guarantees protecting economic operators 
from negative attitudes of the awarding authority. For the public contracts that are 
not,  or  are  only  partially,  covered  by  the  Directive,  the  principles  of  equal 
treatment and non-discrimination on grounds of nationality imply an obligation of 
transparency which, according to the case-law of the Court of Justice, “consists in 
ensuring,  for  the  benefit  of  any  potential  tenderer,  a  degree  of  advertising 
sufficient  to  enable  the  services  market  to  be  opened  up  to  competition  and  the 
impartiality of the procedures to be reviewed.” 

•  Only in very exceptional cases is the payment period one of the negotiable items 
of a contract awarded by a public authority. The competitive advantages of trade 
credit  between  enterprises  do  not  apply  to  contracts  concluded  by  public 
authorities. 

•  The  budgetary  impact  for  national  authorities  would  remain  fairly  limited 
compared  with  the  additional  liquidity  that  earlier  payment  by  public  authorities 
would  generate  for  businesses.  Public  authorities  can  obtain  financing  at  much 
more  attractive  conditions  than  private  undertakings.  It  is  estimated  that  this 
option  would  cost  public  authorities  7.25  billion  euro  but  that  the  additional 

67 

68 

For  similar  reasons,  the  Irish  authorities  also  came  to  the  conclusion  that  possible  advantages  of  this 
idea  are  very  much  outweighed  by  the  significant  disadvantages  that  could  arise,  that  it  is  a 
See 
response 
disproportionate 
http://www.entemp.ie/enterprise/smes/publications.htm. 
Directive 2004/17/EC of 31 March 2004 coordinating the procurement procedures of entities operating 
in the water, energy, transport and postal services sectors (OJ L 134, 30.4.2004, p. 1–113) and Directive 
2004/18/EC  of  31  March  2004  on  the  coordination  of  procedures  for  the  award  of  public  works 
contracts,  public  supply  contracts  and  public  service  contracts  (OJ  L  134,  30.4.2004,  p.  114–240). 
These directives do not concern the content of the contract or its performance. 

payments. 

issue 

late 

the 

of 

to 

EN 

33 

   EN 

 
                                                 
liquidity for businesses would amount to 179.11 billion euro69. Assuming that this 
measure  will  be  effective  and  that  national  authorities  will  pay  within  the  legal 
deadline,  the  actual  amount  spent  on  procurement  would  not  increase  but,  for 
some  Member  States,  payment  may  have  to  take  place  earlier  in  the  year.  This 
could have an effect on the scheduling of cash expenditure for Member States in 
which payment periods for public authorities exceed 30 days. According to Table 
3.3,  there  would  be  no  -  or  a  negligible  -  impact  on  cash  management  for  most 
public authorities in 19 Member States. Some public authorities in the 8 remaining 
Member States  would have to change their  cash  management practices and they 
would lose bank interest for the period between the current payment date and the 
future payment date or, in case of late payment, they would have to pay interest 
for late payment. Nevertheless, it is safe to assume that mismatches between the 
timing  of  payments  and  the  availability  of  cash  might  result  in  conditions  of 
temporary cash surpluses or temporary cash shortfalls for public authorities if they 
fail  to  implement  active  daily  cash  management.  Member  States  with  complex 
to  eliminate  duplication  of 
expenditure  approval  processes  may  have 
responsibilities  of  multiple  players  involved  in  intermediate  handling.  In  the 
absence  of  any  reliable  scientific  data  on  the  actual  payment  practices  of  public 
authorities, it is impossible to estimate the budgetary impact of this option. 

•  This option should not entail any adjustment and compliance costs for economic 

operators.  

•  The effectiveness of this option will depend upon the willingness of businesses to 
enforce their rights and upon a sufficiently high sanction in case of late payment. 
Where  private  debtors  might  heavily  damage  their  commercial  or  professional 
reputation  by  paying  late  and  loose  the  trust  of  their  creditors  in  long-term 
commercial  relationships,  public  authorities  are  in  a  more  comfortable  position 
since  reputation  and  long-term  trust  are  less  important  factors  when  authorities 
procure goods and services. Furthermore, the feeling of impunity may arise within 
public authorities due to the slowness and prohibitive cost of legal procedures to 
claim  payment  against  public  authorities,  the  greater  availability  of  legal 
resources,  less  legal  possibilities  to  seize  public  property  and  the  non-deterrent 
rate of the statutory interest.  

Table 1.21: Summary of impacts of option 3a/2 

Effectiveness 

Efficiency 

Consistency 

Yes: fear of damaging the commercial relationship with the client should not 
exist in contracts concluded with national authorities. Moreover, the payment 
period is normally not a negotiable item of a contract awarded by a public 
authority. However, a sufficiently high sanction in case of late payment needs to 
be foreseen.  
Yes: budgetary impact for national authorities would remain fairly limited 
compared with the additional liquidity that earlier payment by public authorities 
would generate for businesses.  
Yes: trade-offs across other domains could not be identified. 

69 

See Tables 3.15, 3.16 and 3.17 in Annex 3. It should be noted that these estimates are made on the basis 
of the figures in Tables 3.1 to 3.6 and Table 3.14 which are based on surveys. Therefore, it is possible 
that public authorities pay their major invoices on time and postpone payment for smaller invoices, or 
vice versa. 

EN 

34 

   EN 

 
                                                 
5.6. 

Option 3b (legislative): increasing the “margin” interest rate 

This option has many positive aspects. Increasing the “margin” interest rate for late 
payment from 7% to 12% would certainly constitute a strong deterrent for debtors, as 
well  as  a  strong  incentive  for  creditors.  The  impact  on  trade  credit  would  be 
negligible since creditors would still be entitled to fix a payment period in line with 
the trade credit they are prepared to grant to their client. However, there is a risk that 
some companies could take advantage of their unequal negotiating power and force 
smaller businesses to consent to longer payment periods to avoid paying interest for 
late payment. 

Obviously,  this  option  could  have  a  strong  impact  on  businesses  and  authorities 
paying late systematically. In order to avoid the negative financial consequences of 
late payments, they would have to pay on time, seek bank credit or start negotiating a 
longer  payment  period  that  could  be  accepted  by  both  parties.  However,  a  linear 
increase of the “margin” interest rate would have a linear impact on claims for late 
payment so that the deterrent effect of this measure might be bigger for late payment 
due to larger businesses. Considering that larger businesses are usually more familiar 
with  charging  interest  which  is  often  higher  than  the  statutory  rate,  they  would 
probably be the main beneficiaries of this option. Assuming that smaller businesses 
usually invoice smaller amounts, this option would hardly have any effect on them, 
in particular in the light of their narrow client spread and the resulting over-reliance 
on specific client activity to maintain revenue streams. 

Debt collection agencies would benefit by collecting interest on the overdue debts of 
their clients along with some collection costs and  could pass this benefit onto their 
clients in the form of lower commission rates. Factoring agencies can apply interest 
charges on the trade debts of the debtor and collect the interest. Other parties dealing 
with debt collection would equally benefit. 

Although,  at  first  sight,  this  option  seems  to  present  many  positive  sides,  the 
negative  aspects  of  this  option  need  to  be  highlighted.  The  effectiveness  and  the 
efficiency of this option are doubtful: 

•  During  the  public  consultations,  stakeholders  seemed  to  be  satisfied  with  the 
current  “margin”  interest  rate.  61%  of  EBPT  respondents  and  59%  of  IPM 
respondents took the view that the current rate is reasonable and proportionate to 
encourage timely payment. This may be due to the fact that, in the case of a late 
payment,  the  usual  response  for  22%  of  EBTP  respondents  and  30%  of  IPM 
respondents  is  to  postpone  their  own  payments  to  their  creditors.  The  “pass-on” 
effect  of  late  payments  can  turn  creditors  into  debtors.  Given  that  all  businesses 
are creditors and debtors at the same time, stakeholders may have answered this 
part of the EBTP and IPM questionnaires as debtors rather than creditors. 

•  Businesses are already entitled to negotiate a higher interest rate in the contract or 
to  include  a  higher  rate  in  their  commercial  conditions.  The  current  “margin” 
interest  rate  is  only  a  minimum  interest  rate  so  creditors  may  deviate  from  that 
rate and charge a higher interest rate for late payment. 

•  The current rules allow Member States to provide for a higher minimum “margin” 

rate in their national legislation. 

EN 

35 

   EN 

 
•  This option could strengthen the position of bigger or more powerful businesses. 
Some  experts  argue  that  interest  for  late  payment  reinforces  the  bargaining 
position of firms that ask for a discount for early payment. These firms consider 
that, if interest can be charged for late payment, an equivalent discount should be 
given  for  early  payment.  One  possible  further  issue  with  the  current  statutory 
interest  rate  is  that  this  was  set  with  a  view  to  ‘compensating’  small  businesses 
based  on  their  average  cost  of  capital.  However  the  same  rate  applies  to  large 
businesses  which  generally  have  a  much  lower  cost  of  capital.  Therefore,  one 
could argue that large businesses are ‘more than compensated’ and in fact have an 
incentive to enforce interest penalties. This is particularly the case if they are less 
fearful of losing business by applying penalties70. 

•  Businesses  working  with  pre-printed  invoices  would  have  to  bear  a  fairly  small 
amount  of  adjustment  costs  when  they  amended  their  general  commercial 
conditions to adapt to this option. It is reasonable to believe that these costs would 
be  quickly  recovered  by  more  timely  payments  and  by  interest  on  late  payment 
paid by debtors. 

Table 1.22: Summary of impacts of option 3b  

Effectiveness  Doubtful: stakeholders seem to be satisfied with the current “margin” interest 

rate. Businesses are already entitled to negotiate a higher interest rate in the 
contract or to include a higher rate in their commercial conditions. The current 
rules allow Member States to provide for a higher minimum “margin” rate in their 
national legislation. 
Doubtful: this option could strengthen the position of bigger or more powerful 
businesses since it would reinforce the bargaining position of firms that ask for a 
discount for early payment. 

Efficiency 

Consistency  Yes: trade-offs across other domains could not be identified. 

5.7. 

Option 3c (legislative): the abolition of the threshold 

The positive side of the repeal of the possibility that claims for interest of less than 
€5  could  be  excluded  would  certainly  clear  a  hurdle  for  claiming  interests  for  late 
payments,  in  particular  for  SMEs.  If,  for  example,  the  interest  rate  I  is  11%  per 
annum non compounded and the amount A owed is 1,000 Euros, the number of days 
overdue N before the creditor can claim interest is, according to the current rules: N 
= 5 x 365 / (A x I) = 17 (16.59) days. By repealing this threshold, this creditor could 
seek interest for late payments 16 days earlier than nowadays in this case. The higher 
the amount, the shorter this period will be. If one assumes that SME’s are more likely 
to  invoice  smaller  amounts  than  major  companies,  this  threshold  would  hit  SME’s 
first.  This  option  is  particularly  effective  for  claiming  interest  for  late  payment  in 
smaller transactions where interest amounts to only a small sum. 

On the negative side, it is fair to assume that this option, if adopted independently 
from  any  other  measure,  is  unlikely  to  encourage  creditors  to  seek  the  payment  of 
interests  of  less  than  €5.  The  cost  of  establishing  the  invoice  charging  the  interest 
will  be  higher  than  the  amount  of  the  interest,  thus  making  it  uneconomical  to 
collect. It is therefore doubtful whether this option would have any effect on a stand-
alone basis. 

70 

Wilson N., “An Investigation into Payment Trends and Behaviour in the UK: 1997-2007”, Department 
for Business, Enterprise & Regulatory Reform and CMRC, 2008. 

EN 

36 

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Although this option would not have any negative impact on creditors, its impact on 
debtors may not be clearly perceivable. The abolition of the threshold could have a 
pedagogic  effect  but  would  be  unlikely  to  result  into  short-term  attitude  changes. 
More  importantly,  debtors  know  that  only  very  few  creditors  will  start  court 
proceedings  for  such  an  amount  of  less  that  €5  so  that  some  debtors  could  simply 
decide to disregard this invoice and fail to pay the interests. One should also keep in 
mind  that  it  is  not  excluded  that,  in  practice,  larger  companies  would  benefit 
proportionally more than smaller companies from this option, since they are often in 
a  better  position  to  charge  interest  than  smaller  operators,  given  the  differences  in 
buyer/supply power in the supply chain. 

Table 1.23: Summary of impacts of option 3c  

Effectiveness  Yes for small transactions if accompanied by other measures that would make it 

Efficiency 

Consistency 

economical to collect the outstanding amounts.. 
Yes, especially for SMEs. No budgetary, transaction and compliance costs could be 
identified. 
Yes: trade-offs across other domains could be identified. 

5.8. 

Option 3d (legislative): the introduction of a “Late Payment Fee” 

As its stands, the transaction costs for charging interest by means of an invoice can 
hardly be recovered:  

Table 1.24: Provisions for recovery costs in Member States 

Austria 

Belgium 

Czech Republic 

Spain 

Finland 

Ireland 

Malta 

United Kingdom 

Germany 

Poland 

Portugal 

Sweden 
France 
Slovakia 

the 

lawyers 

fees  of 

as  determined  by 

The losing party in a court case will be responsible for the legal costs of court 
action, 
the 
including 
“Rechtsanwaltstarifgesetz”.  
The losing party in a court case will be responsible for the legal costs of court 
action, including the fees of lawyers within the limits laid down by the law of 
21 April 2007 and the royal decree of 26 October 2007. 
Costs for legal representation paid as a lump sum (usually according to value 
of  suit).  Hourly  fees  of  lawyers  paid  in  full  in  high  value  cases,  but  if  low 
value, full costs may not be awarded 
All  recovery  costs  up  to  15%  of  the  amount  of  the  debt  if  debt  exceeds 
€30,000. If it is less than €30,000, maximum is the value of the debt 
Judges decide on recovery costs and creditors can claim all. However, debtors 
will  pay  maximum  of  €192  to  €302  depending  on  size  and  nature  of  debt 
(This  limit  can  be  set  aside  in  exceptional  circumstances).  Median  amount 
awarded in 2005 was €220 
If the debt is less than €1,000, recovery payment is €40. If less than €10,000 
the  amount  is  €70  and  if  more  than  €10,000  it  rises  to  €100.  However,  the 
amount  of  recovery  costs  in  cases  of  late  payment  must  be  stated  in  the 
contract 
Reasonable compensation costs can be recovered for all recovery costs 
Compensation costs of £40 are payable on debts of less than £1,000, £70 on 
debts of less than £10,000 and £100 for debts of more than £10,000  
As  a  general  rule,  the  loser  in  a  court  case  will  be  responsible  for  the  legal 
costs of court action, but the judge decides whether out-of-court costs and the 
fees of lawyers can be claimed. 
Losing party pays costs in legal cases which can vary from €25 to €25,000 
Judges  rarely  award  costs  over  and  above  court  costs.  Debts  of  more  than 
€3,740 require representation by a lawyer 
All recovery costs can be claimed but maximum payable is €100 
Recovery costs are only payable as a result of court proceedings 
Reasonable compensation is payable for all relevant recovery costs 

EN 

37 

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The purpose of the “Late Payment Fee” would be to provide an instant deterrent to 
the  debtor  and  an  incentive  on  the  part  of  the  creditor  to  claim  interest,  if  it  is 
assumed the fee will exceed any costs (e.g. invoicing, accounting and administration 
costs)  placed  on  the  creditor  when  charging  interest.  Setting  the  correct  fee  is 
important in  this  respect, if the effectiveness of the  measure  is  to  be  maximised. A 
fixed fee charged on a relatively small debt is proportionally going to have a much 
larger impact than in relation to much larger transactions.  

The principal advantage of this option is that it would permit businesses to recover 
the  transaction  costs  of  charging  interest  for  late  payments  so  that  only  purely 
commercial  arguments  would  prevent  creditors  from  charging  interest.  Under  this 
option,  the  cost  of  creating  the  invoice  charging  the  interest  would  be  recovered 
together  with  the  amount  of  the  interest,  so  that  it  becomes  economical  to  collect 
interest. These costs are redistributive in nature71. 

Assuming  that  the  cost  C  of  sending  reminder  or  dunning  letters  to  a  debtor  is 
20 Euros  (including  special  tracking  postage/return  receipt  letter,  labour  cost, 
equipment etc), that the interest rate I is 11% per annum non compounded and that 
the debt amount A is €1,000, the number of days N before an overdue payment starts 
to compensate a creditor is currently: N = C x 365 / (A x I) = 67 (66.36) days. As its 
stands, only after 67 days of overdue payment it becomes economically interesting to 
apply  the  current  legal  provisions  on  late  payment.  Under  this  option,  the  creditor 
would not have to wait until it becomes economically interesting to charge interests. 
He  would  have  an  immediate  incentive  to  charge  interest  for  a  late  payment  as  the 
administrative burden and the cost of invoicing the client would not be higher than 
the compensation provided by the law. More than 69% of the IPM respondents are in 
favour of this fee. 

For many smaller transactions, interest amounts to only a small sum, thus the making 
it  uneconomical  to  collect,  particularly  when  the  risk  of  damaging  a  business 
relationship  is  considered.  A  larger  fixed  fee  would  be  a  more  effective  instrument 
for  companies  dealing  in  smaller  transactions.  A  fixed  amount  may  therefore 
compensate  a  business  for  the  administrative  cost  related  with  late  payment,  but  to 
the competitive advantage of SMEs dealing in smaller transactions. Debt collection 
agencies  and  other  third  parties  dealing  with  debt  collection  as  well  as  factoring 
agencies would benefit from this option.  

This option could give raise to some minor adjustment cost for businesses working 
with  pre-printed  invoices.  Since  the  “Late  Payment  Fee”  would  be  optional  and 
businesses would not be obliged to amend their general commercial conditions, one 
may assume that the adjustment costs would be recovered very quickly. 

Table 1.25: Summary of impacts of option 3d  

Effectiveness 

Efficiency 

Consistency 

Yes: it would permit businesses to recover the transaction costs of charging 
interest for late payments so that only purely commercial arguments would 
prevent creditors from charging interest.  
Yes. Costs (mainly transaction costs) are redistributive. No budgetary or 
compliance costs. 
Yes: trade-offs across other domains could not be identified. 

71 

See Table 3.19 in Annex 3. 

EN 

38 

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5.9. 

Option 3e (legislative): the introduction of a “Late Payment Compensation” 

to 

The alternative to the previous option is a fixed financial compensation of 1% of the 
outstanding  amount  for 
late  payment.  This 
the  recovery  costs  related 
compensation would also be cumulated with the interests for late payment and could 
even be increased in case of substantial delays. The advantage of this option is its 
strong  deterrent  effect  on  debtors  proportional  to  the  size  of  the  claim.  The 
compensation costs incurred by the debtor for paying late in all circumstances would 
exceed  the  savings  that  he  would  otherwise  obtain  from  free  trade-credit.  It  could 
encourage  the  use  of  debt  collection  agencies,  factoring  agencies  and  other  third 
parties dealing with debt collection since businesses would be able to recover part of 
the commission or fees to be paid to these agencies and other third parties.. 

One of the drawbacks is the fact that, for many smaller transactions, a compensation 
of  1%  amounts  to  only  a  small  sum,  thus  the  making  it  uneconomical  to  collect, 
particularly  when  the  risk  of  damaging  a  business  relationship  is  considered.  In 
addition, larger companies benefit proportionally more than smaller companies from 
a “Late Payment Compensation” as they can obtain lower interest rates on loans from 
financial institutions than SMEs and are often in a better position to charge interest 
than  smaller  operators,  given  the  differences  in  buyer/supply  power  in  the  supply 
chain. A flat rate may therefore compensate the company for late payment, but to the 
competitive disadvantage of SMEs that are dealing in smaller transactions. 

This  option  could  give  rise  to  some  minor  adjustment  cost  for  businesses  working 
with pre-printed invoices.  

Table 1.26: Summary of impacts of option 3e  

Effectiveness  Yes: strong deterrent effect on debtors proportional to the size of the claim since 

the costs incurred by the debtor would exceed the savings that he would otherwise 
obtain from free trade-credit.  
Yes. Costs (mainly transaction costs) are redistributive. No budgetary or 
compliance costs. 
Yes: trade-offs across other domains could not be identified. 

Efficiency 

Consistency 

5.10.  Option 3f (legislative): Extending the role of representing organisations 

Several Member States reserve certain legal activities to a particular legal profession, 
for  example  the  provision  of  legal  advice  (reserved  to  lawyers)72.  In  particular, 
according  to  Council  Directive  77/249/EEC  to  facilitate  the  effective  exercise  by 
lawyers of the freedom to provide services, judicial activities and representing clients 
before  public  authorities  should  be  pursued  in  any  given  Member  State  under  the 
obligations laid down for lawyers established in that State. However, this provision 
only  applies  to  cross-border  activities  by  lawyers  as  defined  in  the  Directive. 
Consequently,  it  does  not  apply  to  representative  organizations.  Moreover, 
organisations representing SMEs do not represent clients but only their members so 
that, unlike lawyers, they do not operate in a competitive environment. In addition, 
representation  by  a  lawyer  or  another  legal  professional  is  not  mandatory  for 
claimants  within  the  framework  of  Regulation  (EC)  No  861/2007  establishing  a 

72 

For an overview, see http://ec.europa.eu/civiljustice/case_to_court/case_to_court_ec_en.htm. 

EN 

39 

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European  Small  Claims  Procedure  and  Regulation  (EC)  No  1896/2006  creating  a 
European order for payment procedure.  

The  advantage  of  this  option  is  that  smaller  businesses  with  insufficient  resources 
would  neither  have  to  bear  the  cost  and  financial  risks  of  bringing  an  action  nor 
spend  management  time  on  chasing  the  late  payment.  It  could  be  helpful  for 
enterprises having insufficient resources to take action against the debtor or lacking 
the knowledge how to calculate late payment interest. It would also improve access 
to  justice  for  smaller  businesses  for  which  litigation  for  late  payment  constitutes  a 
major  hurdle.  Moreover,  the  mere  possibility  of  having  to  face  litigation  could 
encourage debtors to pay smaller creditors within the agreed or legal deadline. 

This  option  presupposes  that  measures  are  taken  to  reduce  the  cost  of  bringing  an 
action  and  the  associated  financial  risks.  Any  action  taken  by  a  representative 
organisation  involves  administrative  costs  in  preparing  the  file,  court  fees,  possibly 
lawyers' fees and, if the action is brought in another Member State, translation costs. 
Therefore, the impact of this option depends to a large extent on the implementation 
of options 3c, 3d and 3e. 

This  negative  side  of  this  option  is  the  lack  of  effectiveness.  The  problem  of 
insufficient resources would, at least partly, be shifted to organisations representing 
SMEs  which  may  not  have  the  human  or  financial  resources  to  cope  with  the 
administrative  charges  and  the  financial  risks  of  litigation  on  late  payment.  A 
representative  organisation  may  not  have  the  resources  to  simultaneously  handle 
several actions related to distinct late payment cases and may decide to prioritise its 
action. A very important stumbling block is that the organisation may be prevented 
from bringing an action because of an internal conflict of interest, for example when 
a business association has as members both the creditors and the debtor. Finally, it is 
possible that the interests of certain groups of businesses are not represented by any 
organisation (e.g. SMEs active in a new market with no trade association). 

Table 1.27: Summary of impacts of option 3f  

Effectiveness  Doubtful: these organisations may not have the resources to cope with the 

administrative charges and the financial risks of litigation on late payment. They 
may also be prevented from bringing an action because of a conflict of interest, for 
example when the organisation has as members both the creditors and the debtor.  
Yes if measures are taken to reduce the cost of bringing an action and the 
associated financial risks (options 3c, 3d and 3e). 
Yes: trade-offs across other domains could not be identified. 

Efficiency 

Consistency 

6. 

COMPARING THE OPTIONS 

6.1. 

General comparison 

Considering  the  availability  of  several  forms  of  intervention,  comparison  of  the 
options should concentrate on those limiting the EU institutions' involvement to what 
is necessary to achieve the objectives of the Treaties. The form of Community action 
should  be  as  simple  as  possible,  consistent  with  satisfactory  achievement  of  the 
objective of the measure and the need for effective enforcement.  

It is also important to keep in mind that the current rules (baseline option) do not aim 
at  full  harmonisation  of  national  laws  but  at  compliance  with  some  minimum 

EN 

40 

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requirements that apply across the EU. With the exception of option 3a, businesses 
are  not  obliged  to  apply  these  rules  and  to  claim  their  rights.  Whether  they  do 
depends above all on the commercial and financial strategy of each of the operators 
concerned in the light of the economic conditions in the various markets. In addition, 
Member  States  and  enterprises  may  lay  down  more  stringent  provisions.  This 
combination  creates  an  important  element  of  uncertainty  about  the  take-up  by 
economic operators of any of the options except 3a. 

Assessment of the results of this comparison of the policy options with respect to the 
baseline option in terms of their effectiveness73, efficiency74 and consistency75 shows 
the following results: 

Table 1.28: General comparison of options in terms of effectiveness, efficiency and consistency 

Option 

Effectiveness 

Efficiency 

Consistency 

2b 

Option 2a (non-
legislative):  The 
organisation  of 
awareness-
raising  activities 
at 
targeted 
businesses 
Option 
(non-
legislative):  The 
organisation  of 
awareness-
raising  activities 
targeted 
at 
organisations 
representing 
SMEs 
Option 2c (non-
legislative): 
Publication 
of 
information  on 
bad debtors 
Option 
(legislative): 
Harmonisation 
of 
payment 
periods  between 
businesses 

3a/1 

no 

impact 

No: 
debtors 
impact on creditors 

on 
and  minimal 

No:  requires  too  many 
for  a  very 
resources 
uncertain result. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

No: 
objectives 
unlikely to be achieved. 

are 

Yes: 
low 
fairly 
budgetary  cost  for  the 
EU. No other costs. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

possible 
Doubtful: 
on 
effect 
preventive 
creditors 
but  many 
practical  drawbacks  for 
its implementation 
Yes: likely to lead to less 
late payments 

No: 
high 
very 
administrative  costs  for 
businesses. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

No: 
compliance 
adjustment costs. 

Considerable 
and 

compete 

No:  loss  of  contractual 
freedom  by 
removing 
the  ability  of  companies 
to 
through 
payment  periods  offered 
to  clients.  This  could  in 
turn  put  more  pressure 
on  other  aspects  of 
contract 
negotiation 
where  larger  companies 
exercise 
can 
influence 
significant 
company 
over 

small 

still 

73 
74 

75 

The extent to which options can be expected to achieve the objectives of the proposal. 
The  extent  to  which  objectives  can  be  achieved  for  a  given  level  of  resources/at  least  cost  (cost-
effectiveness). 
The extent to which options are likely to limit trade-offs across the economic, social, and environmental 
domain. 

EN 

41 

   EN 

 
                                                 
3a/2 

Option 
(legislative): 
Harmonisation 
of  periods  for 
by 
payment 
public 
authorities 
businesses 

to 

3b 

the 

Option 
(legislative): 
increasing 
“margin” 
interest rate  

3c 
Option 
(legislative):  the 
abolition  of  the 
€5 threshold 

3d 
Option 
(legislative):  the 
introduction of a 
“Late  Payment 
Fee” 

3e 
Option 
(legislative):  the 
introduction of a 
“Late  Payment 
Compensation” 

Option 
(legislative): 
Extending 

3f 

the 

in 

in 

rate 

States 

current 

Yes:  fear  of  damaging 
commercial 
the 
relationship  with 
the 
client should not exist in 
contracts concluded with 
national 
authorities. 
Moreover,  the  payment 
period  is  normally  not  a 
negotiable 
item  of  a 
contract  awarded  by  a 
public 
authority. 
However,  a  sufficiently 
high  sanction  in  case  of 
late payment needs to be 
foreseen.  
Doubtful:  stakeholders 
seem to be satisfied with 
“margin” 
the 
interest  rate.  Businesses 
are  already  entitled  to 
higher 
a 
negotiate 
interest 
the 
rate 
contract  or  to  include  a 
higher 
their 
commercial  conditions. 
The  current  rules  allow 
to 
Member 
provide 
for  a  higher 
minimum  “margin”  rate 
in 
national 
their 
legislation. 
small 
Yes 
transactions 
if 
accompanied  by  other 
measures 
that  would 
make  it  economical  to 
collect  the  outstanding 
amounts. 
Yes: 
it  would  permit 
businesses to recover the 
transaction 
of 
charging  interest  for  late 
payments  so  that  only 
commercial 
purely 
arguments 
would 
prevent  creditors  from 
charging interest.  
Yes: 
strong  deterrent 
debtors 
on 
effect 
proportional  to  the  size 
of  the  claim  since  the 
costs 
the 
incurred  by 
debtor would exceed  the 
savings  that  he  would 
otherwise  obtain  from 
free trade-credit.  
these 
Doubtful: 
organisations  may  not 
to 
have 

the  resources 

costs 

for 

suppliers 
trade-offs  across 
Yes: 
other  domains  could  not 
be identified. 

Yes:  budgetary  impact 
for  national  authorities 
would 
fairly 
remain 
limited  compared  with 
the  additional  liquidity 
that  earlier  payment  by 
public  authorities  would 
generate for businesses.  

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

strengthen 

this  option 
Doubtful: 
could 
the 
position  of  bigger  or 
more 
powerful 
businesses since it would 
reinforce  the  bargaining 
position of firms that ask 
for  a  discount  for  early 
payment. 

Yes, 
for 
especially 
SMEs.  No  budgetary, 
transaction 
and 
compliance  costs  could 
be identified. 

Yes.  Costs 
(mainly 
transaction  costs)  are 
redistributive. 
No 
budgetary or compliance 
costs. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

Yes.  Costs 
(mainly 
transaction  costs)  are 
redistributive. 
No 
budgetary or compliance 
costs. 

Yes: 
trade-offs  across 
other  domains  could  not 
be identified. 

if  measures  are 
Yes 
taken  to  reduce  the  cost 
of bringing an action and 

trade-offs  across 
Yes: 
other  domains  could  not 
be identified. 

EN 

42 

   EN 

 
the  associated  financial 
risks (options 3c, 3d and 
3e). 

of 

role 
representative 
organisations 

on 

with 

the 
cope 
charges 
administrative 
and the financial risks of 
litigation 
late 
payment. They may also 
from 
prevented 
be 
bringing 
action 
an 
because  of  a  conflict  of 
interest, 
example 
for 
when 
the  organisation 
has as members both the 
creditors and the debtor.  

6.2. 

Ranking the options 

The above impact analysis shows that, as regards B2B transactions, options 3a/2, 3c, 
3d  and  3e  meet  the  criteria  of  effectiveness,  efficiency  and  consistency.  The  other 
options fail in respect of at least one criterion:  

Table 1.29: Ranking the options  

Option 

Effectiveness 

Efficiency 

Consistency 

RECOMMENDED CHOICE 

Option  3a/2  (legislative):  Harmonisation 
of  periods 
for  payment  by  public 
authorities to businesses 
Option  3e  (legislative):  the  introduction 
of a “Late Payment Compensation” 
Option  3c  (legislative):  the  abolition  of 
the €5 threshold 
Option  3d  (legislative):  the  introduction 
of a “Late Payment Fee” 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

OPTIONS WHICH ARE NOT RECOMMENDED 

2a 

Option  3b  (legislative):  increasing  the 
“margin” interest rate  
Option  3f  (legislative):  Extending  the 
role of representative organisations 
Option  3a/1  (legislative):  Harmonisation 
of payment periods between businesses 
(non-legislative): 
Option 
organisation 
awareness 
activities targeted at businesses 
Option 
organisation 
activities 
representing SMEs 
Option  2c  (non-legislative):  Publication 
of information on bad debtors 

The 
raising 
organisations 

(non-legislative): 
awareness 

of 
targeted 

The 
raising 

2b 

of 

at 

Doubtful 

Doubtful 

Doubtful 

Yes 

No 

No 

Yes 

No 

No 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

No 

Yes 

Yes 

Doubtful 

No 

Yes 

Considering  that  none  of  the  options  is  mutually  exclusive  and  that  their  optional 
nature for businesses allows them to choose the most appropriate tool in the light of 
the  late  payment  at  hand,  it  is  suggested  that  options  3a/2,  3c,  3d  and  3e  be  taken 
together as a single package of measures. 

EN 

43 

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6.3. 

Administrative cost 

The  only  option  likely  to  impose  significant  administrative  costs76  on  business  is 
option 2c. A rough indication of these costs can be found in table 1.16. 

7. 

MONITORING AND EVALUATION 

The organisation of a reliable monitoring and evaluation scheme for the combination 
of options 3a/2, 3c, 3d and 3e is complicated by the principle that the rules laid down 
in  the  Directive  should  not  have  a  compulsory  effect  on  businesses,  i.e.  businesses 
should  not  be  obliged  to  apply  these  rules  and  to  claim  their  rights.  In  addition, 
evidence  suggests  that  a  negative  economic  cycle  is  likely  to  negatively  influence 
timely payment as it affects companies’ cash flows and funding opportunities77.  

During  a  period  of  economic  growth,  enterprises  benefit  from  better  cash  inflow 
which, at least partly, can be used for paying more promptly.  

Nevertheless, monitoring and evaluation could be organised primarily by reference to 
the information and data set out in annexes 1, 2 and 3 (partly) which could be used as 
indicators  for  the  achievement  of  the  objectives.  The  organisation  of  new,  similar 
surveys  is  recommended  to  compare  the  behaviour  of  creditors  before  and  after 
implementation of the options. 

Furthermore, Member States would play a stronger role in the implementation of the 
directive if options 3a/2, 3c, 3d and 3e were to be retained. National authorities could 
provide information on the implementation of these options in a report that would be 
sent to the Commission at three-year intervals. 

76 

77 

Administrative  costs  are  defined  as  the  costs  incurred  by  enterprises,  the  voluntary  sector,  public 
authorities  and  citizens  in  meeting  legal  obligations  to  provide  information  on  their  action  or 
production, either to public authorities or to private parties. 
See for example Baum C, Caglayan M. and Ozkan N., “The Impact of Macroeconomic Uncertainty on 
Trade  Credit  for  Non-Financial  Firms”,  Boston  College,  Economics  Department,  Working  Papers  in 
Economics, 2003; Lovea I, Preveb L. and Sarria-Allende V., “Trade credit and bank credit: Evidence 
from  recent  financial  crises”,  Journal  of  Financial  Economics,  Volume  83,  Issue  2,  February  2007, 
pages  453-469;  Bossay  F.,  “Credit  chains  and  the  propagation  of  financial  distress”,  ECB  Working 
Paper No 573, January 2006. 

EN 

44 

   EN 

 
                                                 
8. 

ANNEXES 

8.1. 

Annex 1: Results of the I.P.M. consultation of interested parties 

Consultation from 29 May 2008 to 31 August 2008 on Your Voice on Europa. 510 
Responses were received. 

a) Identity 
1a. Are you replying as a:  
single choice reply 

Company 
 Representative organisation 
 Other interested party 
 Public authority 

1b. What is the size of your company 
(number of employees)? single choice 
reply 
 0 – 9 
 10 – 49 
 50 – 249 
 250+ 

2. What is your country of residence? 
single choice reply 

Italy 
Germany 
United Kingdom 
Greece 
Belgium 
Portugal 
Spain 
Ireland 
Austria 
France 
Cyprus 
Other 
Czech Republic 
Netherlands 
Sweden 
Denmark 
Poland 
Finland 
Bulgaria 
Slovenia 
Hungary 
Malta 
Estonia 
Latvia 
Lithuania 
Luxembourg 
Romania 

Number of 
requested records 

Requested records 
(510) 

361 
83 
59 
7 

70.8% 
16.3% 
11.6% 
1.4% 

Number of 
requested records 

Requested records 
(361) 

134 
101 
64 
62 

37.1% 
28% 
17.7% 
17.2% 

% of total 
number records 
(510) 
70.8% 
16.3% 
11.6% 
1.4% 

% of total 
number records 
(510) 
26.3% 
19.8 
12.5% 
12.2% 

Number of 
requested 
records 

Requested 
records 
510) 

81 
77 
76 
56 
53 
35 
25 
20 
14 
13 
13 
12 
7 
7 
5 
4 
3 
3 
2 
2 
1 
1 
0 
0 
0 
0 
0 

15.9% 
15.1% 
14.9% 
11% 
10.4% 
6.9% 
4.9% 
3.9% 
2.7% 
2.5% 
2.5% 
2.4% 
1.4% 
1.4% 
1% 
0.8% 
0.6% 
0.6% 
0.4% 
0.4% 
0.2% 
0.2% 
0% 
0% 
0% 
0% 
0% 

% of total 
number 
records 
(510) 
15.9% 
15.1% 
14.9% 
11% 
10.4% 
6.9% 
4.9% 
3.9% 
2.7% 
2.5% 
2.5% 
2.4% 
1.4% 
1.4% 
1% 
0.8% 
0.6% 
0.6% 
0.4% 
0.4% 
0.2% 
0.2% 
0% 
0% 
0% 
0% 
0% 

EN 

45 

   EN 

 
 
 
Slovakia 

0 

0% 

0% 

b) Problems and effects 
3. Have you experienced problems with other businesses 
paying you later than you require in your normal terms of 
business? single choice reply 

Number of 
requested 
records 

Requested 
records 
(361) 

Seldom (1-25% of your invoices to other businesses) 
Quite often (26-50% of your invoices to other businesses) 
Often (51%-75% of your invoices to other businesses) 
Very often (more than 75% of your invoices to other 
businesses) 
Never 

112 
93 
85 
62 

9 

31% 
25.8% 
23.5% 
17.2% 

2.5% 

1.8% 

% of total 
number 
records 
(510) 
22% 
18.2% 
16.7% 
12.2% 

4. Have you experienced problems with public authorities 
paying you later than you require them to in your normal 
terms of business? single choice reply 

Number of 
requested 
records 

Requested 
records 
(361) 

Very often (more than 75% of your invoices to public 
authorities) 
Seldom (1-25% of your invoices to public authorities) 
Never 
Often (51%-75% of your invoices to public authorities) 
Quite often (26-50% of your invoices to public authorities) 

138 

84 
55 
52 
32 

38.2% 

23.3% 
15.2% 
14.4% 
8.9% 

5. What has been the effect of late payment on your 
business? multiple choices reply  

Number of 
requested 
records 

Requested 
records 
(361) 

It takes up too much management time and valuable working 
hours 
Our business needs bank credit 
It slows down the growth of our business 
It has a negative effect on investment 
It affects the productivity of the business 
It threatens the survival of our business 
It discourages us from engaging in public procurement 
contracts 
It discourages us from engaging in cross-border transactions 
It does not really affect our business 
Other 
Don't know 
Does not apply 

239 

204 
182 
136 
135 
129 
84 

29 
27 
6 
4 
3 

66.2% 

56.5% 
50.4% 
37.7% 
37.4% 
35.7% 
23.3% 

8% 
7.5% 
1.7% 
1.1% 
0.8% 

6. What is your usual response in case of late payment?  
multiple choices reply 

Number of 
requested 
records 

Requested 
records 
(361) 

We contact the client personally 
Our business pays our creditors late in turn 
Our lawyers contact the client 
We are patient and only react after a long time 
A debt collecting agency contacts the client 
Other 
Does not apply 
Don't know 

307 
109 
94 
84 
47 
17 
4 
3 

85% 
30.2% 
26% 
23.3% 
13% 
4.7% 
1.1% 
0.8% 

% of total 
number 
records 
(510) 
27.1% 

16.5% 
10.8% 
10.2% 
6.3% 

% of total 
number 
records 
(510) 
46.9% 

40% 
35.7% 
26.7% 
26.5% 
25.3% 
16.5% 

5.7% 
5.3% 
1.2% 
0.8% 
0.6% 

% of total 
number 
records 
(510) 
60.2% 
21.4% 
18.4% 
16.5% 
9.2% 
3.3% 
0.8% 
0.6% 

EN 

46 

   EN 

 
 
 
 
 
 
 
 
 
EN 

47 

   EN 

 
 
c) Interest 

7a. Do you claim interest for late payment? 
single choice reply 

Never 
Seldom 
Frequently 
Always 
Very often 
Don't know 

7b. Why do you never claim interest?  
multiple choices reply 

Number of 
requested 
records 

Requested 
records 
(361) 

144 
123 
39 
34 
15 
6 

39.9% 
34.1% 
10.8% 
9.4% 
4.2% 
1.7% 

Number of 
requested 
records 

Requested 
records 
(144) 

Out of fear that the customer would be lost 
It is too complicated to claim interest 
Competitors never claim interest for late payments 
Unawareness of the right to charge interest for late payment 
The interest rate is unknown 
Interest is considered as taxable revenue 
Don't know 

84 
69 
54 
17 
11 
7 
5 

58.3% 
47.9% 
37.5% 
11.8% 
7.6% 
4.9% 
3.5% 

7c. Why do you seldom claim interest?  
multiple choices reply 

Number of 
requested 
records 

Requested 
records 
(123) 

Out of fear that the customer would be lost 
It is too complicated to claim interest 
Competitors never claim interest for late payments 
Unawareness of the right to charge interest for late payment 
Interest is considered as taxable revenue 
Don't know 
The interest rate is unknown 

85 
54 
27 
5 
4 
4 
3 

69.1% 
43.9% 
22% 
4.1% 
3.3% 
3.3% 
2.4% 

8a. The laws on late payment in the EU currently specify 
that a creditor may claim an interest rate of approximately 
11 % in case of late payment.  
In your view, is that interest rate reasonable and 
proportionate to encourage timely payment in commercial 
transactions? single choice reply 
Yes 
No 
Don't know 

8b. If you think it is unreasonable or disproportionate, is it: 
single choice reply 

Too low 
Too high 

Number of 
requested 
records 

Requested 
records 
(510) 

301 
172 
37 

59% 
33.7% 
7.3% 

Number of 
requested 
records 

Requested 
records 
(510) 

330 
180 

64.7% 
35.3% 

% of total 
number 
records 
(510) 
28.2% 
24.1% 
7.6% 
6.7% 
2.9% 
1.2% 

% of total 
number 
records 
(361) 
23.3% 
19.1% 
15% 
4.7% 
3% 
1.9% 
1.4% 

% of total 
number 
records 
(361) 
23.5% 
15% 
7.5% 
1.4% 
1.1% 
1.1% 
0.8% 

% of total 
number 
records 
(510) 

59% 
33.7% 
7.3% 

% of total 
number 
records 
(510) 
64.7% 
35.3% 

EN 

48 

   EN 

 
  
 
 
 
8c. What would be a more appropriate total interest rate 
for late payment?  
single choice reply  

Number of 
requested 
records 

Requested 
records 
(330) 

12 to 14% 
15 to 19% 
20 to 24% 
No opinion 
30% or higher 
25 to 29% 

105 
92 
63 
40 
17 
13 

31.8% 
27.9% 
19.1% 
12.1% 
5.2% 
3.9% 

8d. What would be a more appropriate total interest rate 
for late payment?  
single choice reply 

Number of 
requested 
records 

Requested 
records 
(180) 

10% 
8% 
7% or lower 
No Opinion 
9% 

65 
35 
35 
27 
18 

36.1% 
19.4% 
19.4% 
15% 
10% 

9. Do you apply the interest rate of 11 % for late payment 
in your general commercial and payment conditions?  
single choice reply 

Number of 
requested 
records 

Requested 
records 
(361) 

No, I don't apply an interest rate at all 
Yes 
No, I apply another interest rate. 
Don't know 

10. During the last 5 years, did you sign a contract 
(providing services and/or goods) in which the other party 
refused to insert a clause on interest for late payment, or 
which specified an interest rate lower than 11%? 
single choice reply  
Never 
Seldom 
Don't know 
Very often 
Frequently 

204 
74 
64 
19 

56.5% 
20.5% 
17.7% 
5.3% 

Number of 
requested 
records 

Requested 
records 
(361) 

144 
64 
57 
54 
42 

39.9% 
17.7% 
15.8% 
15% 
11.6% 

% of total 
number 
records 
(510) 
20.6% 
18% 
12.4% 
7.8% 
3.3% 
2.5% 

% of total 
number 
records 
(510) 
12.7% 
6.9% 
6.9% 
5.3% 
3.5% 

% of total 
number 
records 
(510) 
40% 
14.5% 
12.5% 
3.7% 

% of total 
number 
records 
(510) 

28.2% 
12.5% 
11.2% 
10.6% 
8.2% 

EN 

49 

   EN 

 
 
 
 
 
 
d) Action 
11. An idea is to introduce in the European Union a “late 
payment fee”, i.e. an automatic minimum amount based on 
the size of the debt, in addition to an interest rate of 
approximately 11%.  
Do you think such a 'late payment fee' would be useful?  
single choice reply 
Yes 
Yes, but only as an alternative to the interest rate for late 
payment 
No, current rules are sufficient 
No, an increase of the interest rate would be more efficient 
Don't know 

12. Sometimes major companies systematically refuse to 
pay the full amount for reasons not envisaged in the 
contract or they systematically pay well after the deadline 
in the invoice.  
Do you think it would be useful if organisations 
representing SMEs were entitled to take action on behalf of 
the SME before a case is referred to court (e.g. mediation) 
or during court proceedings?  
single choice reply  
Yes 
No 
No opinion 

13a. Interest for late payment is only due after the 
contractually agreed payment period. Do you think that a 
maximum period for making payments between businesses 
or between businesses and public authorities fixed at 
European level would be useful?  
single choice reply  
Yes 
No 

Number of 
requested 
records 

Requested 
records 
(510) 

251 
103 

78 
53 
25 

49.2% 
20.2% 

15.3% 
10.4% 
4.9% 

Number of 
requested 
records 

Requested 
records 
(510) 

374 
79 
57 

73.3% 
15.5% 
11.2% 

Number of 
requested 
records 

Requested 
records 
(510) 

% of total 
number 
records 
(510) 

49.2% 
20.2% 

15.3% 
10.4% 
4.9% 

% of total 
number 
records 
(510) 

73.3% 
15.5% 
11.2% 

% of total 
number 
records 
(510) 

407 
103 

79.8% 
20.2% 

79.8% 
20.2% 

13b. Why do you not consider such an EU maximum period 
useful? 
multiple choices reply 

Number of 
requested 
records 

Requested 
records 
(103) 

Contractual freedom of businesses should not be restricted or 
regulated 
It is impossible to provide for a maximum period that would fit 
all enterprises 
It is much better to provide for efficient sanctions 
Other 

72 

63 

20 
0 

69.9% 

61.2% 

19.4% 
0% 

% of total 
number 
records 
(510) 
14.1% 

12.4% 

3.9% 
0% 

EN 

50 

   EN 

 
 
 
 
13c. How long should that maximum period be?  
single choice reply 

30 days 
45 days 
20 days 
Other 

14a. Is it necessary to provide for a specific regime 
favouring micro and small enterprises in case of late 
payment? 
single choice reply 
Yes 
No 
Don't know 

Number of 
requested 
records 

Requested 
records 
(407) 

206 
106 
69 
26 

50.6% 
26% 
17% 
6.4% 

Number of 
requested 
records 

Requested 
records 
(510) 

288 
143 
79 

56.5% 
28% 
15.5% 

14b. What kind of measures should such a regime include? 
1) Fixing a much higher interest rate for late payment to SMEs 
than the one fixed in the laws on late payment in the EU  
single choice reply  

Number of 
requested 
records 

Requested 
records 
(288) 

Yes 
No 
Don't know 

168 
82 
38 

58.3% 
28.5% 
13.2% 

2) Enable representative organisations to take action in name of 
a business 
single choice reply 

Number of 
requested 
records 

Requested 
records 
(288) 

Yes 
No 
Don't know 

222 
36 
30 

77.1% 
12.5% 
10.4% 

3) Labelling systematic late payment to SMEs as an unfair 
business practice  
single choice reply 

Number of 
requested 
records 

Requested 
records 
(288) 

Yes 
Don't know 
No 

4) Other measure  
single choice reply 

Don't know 
Yes 
No 

241 
29 
18 

83.7% 
10.1% 
6.2% 

Number of 
requested 
records 

Requested 
records 
(288) 

148 
89 
51 

51.4% 
30.9% 
17.7% 

% of total 
number 
records 
(510) 
40.4% 
20.8% 
13.5% 
5.1% 

% of total 
number 
records 
(510) 
56.5% 
28% 
15.5% 

% of total 
number 
records 
(510) 
32.9% 
16.1% 
7.5% 

% of total 
number 
records 
(510) 

43.5% 
7.1% 
5.9% 

% of total 
number 
records 
(510) 
47.3% 
5.7% 
3.5% 

% of total 
number 
records 
(510) 
29% 
17.5% 
10% 

EN 

51 

   EN 

 
 
 
 
 
 
 
 
 
8.2. 

Annex 2: Results of the EBTP consultation of interested parties 

Consultation from 13 May 2008 till 20 June 2008 - 408 responses 

Table 2.1: Number of employees in your company 

0 
1-9 
10-49 
50-249 
250-499 
500 + 

Table 2.2: Main sector of activity 

C - Mining/Quarrying 
D – Manufacturing 
E - Electricity, gas and water supply 
F – Construction 
G  - Wholesale  and retail  trade;  repair of  motor  vehicles, motorcycles  and personal  and 
household goods 

H - Hotels, restaurants and bars 
I - Transport, storage and communication 
J - Financial intermediation 
K - Real estate, renting and business activities 
N - Health and social work 
O - Other community, social and personal service activities 

4,9%
22,5%
24,3%
21,8%
7,6%
18,9%

1,5%
24,3%
3,9%
7,4%
13,5%

2,7%
12,7%
7,6%
15,7%
2,5%
8,3%

Table 2.3: Apart from your country, in how many countries of the European Union do you 
regularly sell products and services? 

None 
1 
2-3 
4-5 
more than 5 

41,2%
9,1%
17,4%
8,8%
23,5%

Table 2.4: EBTP respondents having a problem with other businesses paying later than they 
require them to in your normal terms of business 

Seldom (1-25% of your invoices to other businesses) 
Frequently (26-50% of your invoices to other businesses) 
Often (51%-75% of your invoices to other businesses) 
Very often (more than 75% of your invoices to other businesses) 
Never 
Does not apply 

42.3% 
27.9% 
15.7% 
11.2% 
1.9% 
1.1% 

EN 

52 

   EN 

 
 
 
 
Table 2.5: EBTP respondents having a problem with public authorities paying later than they 
require them to in your normal terms of business 

Seldom (1-25% of your invoices to public authorities) 
Does not apply 
Frequently (26-50% of your invoices to public authorities) 
Very often (more than 75% of your invoices to public authorities) 
Often (51%-75% of your invoices to public authorities) 
Never 

36.2% 
21.0% 
12.8% 
12.5% 
9.0% 
8.5% 

Table 2.6: What has been the effect of late payment on your business? (Tick all that apply) 

It takes up too much management time and valuable working hours 
Our business needs a bank credit  
It slows down the growth of our business 
It affects the productivity of the business 
It has a negative effect on investment 
It does not really affect our business 
It threatens the survival of our business 
Discourages from engaging in public procurement contracts 
It discourages from engaging in cross-border transactions 
Does not apply 
Other 
Don't know 

67.0% 
38.3% 
31.4% 
28.7% 
22.9% 
18.4% 
13.6% 
13.0% 
7.4% 
3.7% 
1.9% 
0.3% 

Table 2.7: What is your usual response in case of late payment? (Tick all that apply) 

We contact the client personally 
Our business pays late in turn to our creditors 
Our lawyers contact the client 
A debt collecting agency contacts the client 
We stay patient and only react after a long time 
Other 
Does not apply 
Don't know 

Table 2.8: Do you claim interest for late payment? 

Seldom 
Never 
Frequently 
Very often 
Always 
Don't know 

87.5% 
22.9% 
22.3% 
17.3% 
16.0% 
4.5% 
2.1% 
0%

44.7% 
29.5% 
10.9% 
7.2% 
6.9% 
0.8% 

EN 

53 

   EN 

 
 
 
 
 
Table 2.9: Why do you seldom claim interest? (Tick all that apply) 

Out of fear that the customer would be lost 
It is too complicated to claim interest 
Competitors never claim interest for late payments 
Late interest is considered as revenue, even when it is not paid 
The interest rate is unknown 
Unawareness about the right to charge interest for late payment 
Don't know 

Table 2.10: Why do you never claim interest? (Tick all that apply) 

Out of fear that the customer would be lost 
It is too complicated to claim interest 
Competitors never claim interest for late payments 
Late interest is considered as revenue, even when it is paid 
Unawareness about the right to charge interest for late payment 
The interest rate is unknown 
Don't know 

60.1% 
45.2% 
23.8% 
14.9% 
4.2% 
4.2% 
0.6% 

68.5% 
45.9% 
28.8% 
13.5% 
13.5% 
7.2% 
5.4% 

Table 2.11: The laws on late payment in the EU specify that a creditor may claim an interest rate 
of currently approximately 11 % in case of late payment. In your view, is that interest rate 
reasonable and proportionate to encourage timely payment of your invoices? 

Yes 
No 
Don't know 

Too low 
Too high 

Table 2.12: Is this interest rate 

Table 2.13: What would be a more appropriate total interest rate for late payment? 

7% or lower 
8% 
10% 
9% 
No opinion 

61.4% 
25.0% 
13.6% 

68.1% 
31.9% 

73.3%
13.3%
6.7%
3.3%
3.3%

EN 

54 

   EN 

 
 
 
 
 
Table 2.14: What would be a more appropriate interest rate? 

15 to 19 % 
20 to 24% 
30 % or higher 
25 to 29%  
12 to 14 % 
No opinion 

35.9%
26.6%
23.4%
7.8%
4.7%
1.6%

Table 2.15: Do you apply the interest rate of 11 % for late payment in your general commercial 
and payment conditions? 

No, I don't apply an interest rate at all. 
No, I apply another interest rate. 
Yes 
Don't know 

42.8%
30.1%
20.2%
6.9%

Table 2.16: An idea is to introduce in the European Union a “late payment fee”, i.e. an automatic 
minimum amount based on the size of the debt, in addition to an interest rate of approximately 
11%. Do you think such a 'late payment fee' would be useful? 

Yes 
No, current rules are sufficient 
Yes, but only as an alternative to the interest rate for late payment 
No, an increase of the interest rate would be more efficient 
Don't know 

35.4%
21.3%
18.9%
12.5%
12.0%

Table 2.17: Were you obliged, during the last 5 years, to sign a contract (providing services 
and/or goods) in which the other party refused to insert a clause on interest for late payment, or 
which specified an interest rate lower than 11%? 

Never 
Seldom 
Frequently 
Don't know 
Very often 

43.6%
23.1%
13.8%
12.0%
7.4%

Table 2.18: It happens that major companies grant themselves a discount on the price by 
systematically refusing to pay the full amount for reasons that were not envisaged in the contract. 
Do you think it would be useful if organisations representing SMEs were entitled to take action on 
behalf of the SME before a case is handled in court (e.g. intermediation) or during the court case?

Yes 
No 
No opinion 

EN 

55 

64.1%
18.1%
17.8%

   EN 

 
 
 
 
 
 
Table 2.19: Practices occur whereby companies or national authorities systematically pay well 
after the deadline in the invoice. Do you think it would be useful if organisations representing 
SMEs could take action on behalf of the SME before a case is handled in court (e.g. 
intermediation) or during the court case? 

Yes 
No 
No opinion 

71.8%
16.2%
12.0%

Table 2.20: Interest for late payment is only due after the contractually agreed payment period. 
Do you think that a maximum period for making payments between businesses or between public 
authorities and businesses fixed at European level would be useful? 

Yes 
No 

67.6%
32.4%

Table 2.21: What should, in your view, the maximum period be, taking into account the payments 
your company receives and pays itself? 

30 days 
45 days 
20 days 
Other 

53.5%
20.1%
16.1%
10.2%

Table 2.22: Why do you not consider such an EU maximum period useful? (Tick all that apply) 

Contractual freedom of businesses should not be restricted or regulated 
It is impossible to provide for a maximum period that would fit all enterprises 
It is much better to provide for efficient sanctions 
Other 

73.0%
54.9%
23.0%
4.9%

Table 2.23: Is it necessary to provide for a specific and more favourable regime for micro and 
small enterprises in case of late payment? 

Yes 
No 
Don't know 

47.6%
35.6%
16.8%

EN 

56 

   EN 

 
 
 
 
 
 
Table 2.24: What kind of measures should such a regime include? 

1) Fixing a much higher interest rate for late payment to SMEs than the one fixed in the laws on 
late payment in the EU 

No 
Yes 
Don't know 

2) Enable representative organisations to take action in name of a business 

Yes 
No 
Don't know 

3) Labelling systematic late payment to SMEs as an unfair business practice 

Yes 
No 
Don't know 

4) Other measure 

Don't know 
Yes 
No 

50.3%
40.2%
9.5%

76.5%
14.5%
8.9%

88.8%
8.9%
2.2%

23.5%
17.3%
6.7%

EN 

57 

   EN 

 
 
8.3. 

Annex 3: The causes and the size of the problem: facts and figures 

Table 3.1: Assertions on the causes of late payment 

There  are  a  range  and  complexity  of  motives  for  businesses  both  extending  and  receiving  trade 
credit.  Therefore,  late payment  is  likely  to derive  from  multiple  and often  complex  causes.  In  the 
diagram below, the main themes associated with likely causes of late payments are summarised. 

1. The Market Structure: The ‘popular’ view of the causes of late payment asserted that business 
customers that have a dominant position in the market vis-à-vis suppliers are able to leverage their 
own  cash-flow  and  profits  by  taking  extended  trade  credit  from  the  supply-base.  Clearly  this 
behaviour  is  more  likely  in  market  structures  where  there  exist  dominant  buyers  with  very 
competitive supply chains. The buyer has bargaining power arising from its ability to select from a 
range of potential suppliers and is able to dictate the credit terms/periods from suppliers and/or take 
extended  credit  (pay  late)  when  it  is  advantageous  to  do  so  without  fear  of  a  loss  of  supply. 
Bargaining  may  manifest  itself  by  the  buyer  insisting  on  longer  credit  periods  than  the  supplier 
might  wish  to  extend  and/or  discounts  on  the  invoice  values.  Moreover,  buyers  with  bargaining 
power  may  insist  on  high  standards  of  delivery,  after-sales  service  and  invoicing  providing  much 
scope  for  disputing  invoices  and,  in  consequence,  extending  the  credit  period.  Bargaining  power 
occurs  where  the  buyer  is  a  large  company  and  the  supply-chain  is  composed  of  many  small 
competitive  businesses  or  where  the  market  structure  is  one  of  imperfect  competition.  However 
dominance  is  not  necessarily  a  function  of  the  relative  sizes  of  businesses.  There  are  many  other 
types of customer-supplier relationships where the customer may have a strong bargaining position 
relative  to  the  supplier  related  to  product  type  rather  than  size  of  order/business.  For  instance  a 
supplier is vulnerable if the nature of the product/service being supplied involves investing a lot of 
time and effort in securing a sale with a customer (specific investment) and/or needs repeat business 
to  make  the  relationship  profitable.  Industry  where  there  are  contractors  and  subcontractors  (e.g. 
construction sector; software and IT provision) appear to be bedevilled by late payment problems. 
Typically a contractor waits to be paid before being in a position to pay subcontractors. In the latter 
case  both  the  market  structure  and  the  complex  nature  of  the  product/service  precipitate  the  late 
payment  problem.  […]  Of  course,  small  businesses  with  low  profit  margins  are  more  sensitive  to 
late payments and its impact on cash-flow than larger more profitable companies. 

2.  One  could  assert  that  late  payment  is  a  function  of  poor  business  and  credit  management 
practice.  Where  there  is  scope  for  disputing  the  quality  of  the  supplier’s  products/services,  after-
sales service then the customer is likely to do so and withhold payment until satisfied. This may be 
perceived as valid practice by the customer but as late payment by the supplier. A particular issue 
surrounds credit management practice and the establishment of the terms of trade prior to the sale. 
As will be demonstrated later many small businesses extend credit to customers without establishing 
the credit terms in advance with the customer or without even specifying a payment date. Clearly 
this gives rise to possible disputes surrounding the due date and precipitates uncertainty about the 
timing  of  cash-inflows.  Good  credit  management  practice  would  ensure  that  credit  terms,  credit 
limits and credit periods are clearly established with the customer prior to any trade and that goods 
or services and invoices are supplied as pre-agreed. The supplier should endeavour to credit check 
the customer and establish the financial health, risk and creditworthiness of the customer. Disputes 
should  be  identified  and  resolved  quickly  and  ‘excuses’  for  payment  delays  minimised  or 
eliminated.  Should  late  payment  still  arise  then  it  is  likely  that  the  customer  is  itself  inefficient, 
acting  strategically  and/or  is  in  some  unanticipated  (short  or  long  term)  financial  difficulty.  Of 
course,  the  risks  of  doing  business  dictate  that  the  supplier  cannot  anticipate  all  eventualities  but 
should take all reasonable steps to minimise payment risks. Unfortunately when a supplier  makes 
the ‘lending decision’ to supply to a customer on trade credit terms it is difficult to ascertain how 
much trade credit the customer has received from other suppliers at any point in time and therefore 
establish  whether  the  customer  will  have  enough  cash  to  repay  on  the  due  date.  Moreover, 
customers that do not manage their own working capital well may not always have cash resources 
available to pay creditors as debt fall due. Indeed financial and working capital practice (or lack of) 
has often been cited as being as major reason for late payments between businesses.  

The  reality  of  the  competitive  process  is  that  businesses  will  establish  and  fail  due  to  changes  in 
technology,  product  innovations  and  management  mistakes  and  inefficiencies.  Businesses  on  the 

EN 

58 

   EN 

 
path  to  failure  will  typically  begin  to  struggle  with  cash-flow  and  financing  and  the  servicing  of 
debt.  Often  trade  creditors  will  not  be  a  priority  in  the  pecking  order  of  creditors  as  the  business 
attempts to stay afloat. Firms in financial difficulty often stretch their creditors in order to alleviate 
cash-flow  problems.  Thus  businesses  in  financial  distress  will  be  late  payers  and  businesses  that 
continue  to  supply  will  run  the  increased  risk  of  slow  or  non-payment  from  these  customers. 
Particularly, as alluded to above, if the customer has increased the amount of credit it has received 
from other trade suppliers. Moreover it can often be the case that a business will fail quickly without 
showing  obvious  signs  of  financial  distress  and  the  trade  suppliers  continues  supplying  on  credit 
terms when the banks have started to withdraw funding.  

3. Clearly the macro-economic climate will have a bearing on the number of business failures as 
the economy moves through cycles. Likewise we would expect to see late payments and bad debts 
increasing  as  the  economy  moves  into  a  through  recession.  Subsets  of  small  businesses  that 
overtrade as the economy moves into growth are potential late payers.  

4. Access to finance: A further assertion has been that small and growing businesses can get into 
difficulties  with  cash-flow  and  payment  when  they  have  difficulty  raising  institutional  and  bank 
finance. Businesses that are undercapitalised or inappropriately financed have a constant battle with 
cash-flow.  CMRC  [Credit  Management  Research  Centre,  Leeds  University  Business  School] 
research identified that small, growing businesses and particularly those that service export markets 
can  be  periodically  starved  of  cash  and  struggle  to  pay  creditors.  In  an  empirical  study  of  the 
demand for trade credit by small UK firms, CMRC found strong evidence of a financing demand for 
trade credit. The paper surmised that small firms, which pay trade credit liabilities late, appear to do 
so when they have reached their limit on short-term bank finance. These 'credit rationed' firms were 
typically growing and export oriented.  

Source: Wilson N., “An Investigation into Payment Trends and Behaviour in the UK: 1997-2007”, 
for  Business,  Enterprise  &  Regulatory  Reform  and  CMRC,  2008.  See 
Department 
http://berr.ecgroup.net/Publications/BetterBusinessFramework/Finance.aspx  

Assertions:  Causes of Late Payment

Competition and Bargaining Power

Management and Customer Service

Market Structure
- Imperfect competition
- Bargaining power
- Dominant Buyers/competitive suppliers
- ‘fair trading’
- Sub-contracting
- Competitive process

- Financial management practice
- Credit management practice
- Product and Service Quality
- After-sales service

Macro and Financial Environment

Commercial and B2B Lending

- Flow of commercial finance/credit
- Monetary policy
- Flow and nature of credit information
- Credit Rationing (transitory/permanent)
- Capital Structure (bank/trade credit)

Business Cycle and Monetary Conditions

Business Cycle Upturn/Downturn

Business Cycle Downturn

- over-trading
- under capitalised businesses
- inappropriate financing
- export growth/finance
- product life-cycles/innovation

- tight lending/interest rates
- financial distress and insolvency
- creditors in the pecking order

EN 

59 

   EN 

 
 
Table 3.2: Evolution of payment periods for SMEs78 in 7 Member States (number of days - 
2003-2007) 

Theoretical 
payment 
deadline 

Germany 

Belgium 

Spain 

France 

Italy 

Portugal 

U.K. 

25 

44 

78 

53 

74 

53 

36 

2003 

Actual 
delay 

12 

23 

10 

15 

19 

45 

18 

Actual 
payment 
period 

Theoretical 
payment 
deadline 

37 

67 

88 

68 

93 

98 

54 

27 

42 

82 

52 

70 

47 

35 

2004 

Actual 
delay 

13 

16 

9 

15 

16 

35 

10 

Actual 
payment 
period 

Theoretical 
payment 
deadline 

40 

58 

91 

67 

86 

82 

45 

33 

42 

54 

52 

74 

45 

33 

2005 

Actual 
delay 

19 

20 

13 

13 

27 

38 

18 

Actual 
payment 
period 

52 

62 

67 

65 

101 

83 

51 

2006 

2007 

Theoretical 
payment deadline 

Actual delay 

Actual payment 
period 

Theoretical 
payment deadline 

Actual delay 

Actual payment 
period 

Germany 

Belgium 

Spain 

France 

Italy 

Portugal 

U.K. 

32 

43 

63 

52 

72 

56 

34 

13 

19 

18 

14 

21 

38 

15 

45 

62 

81 

66 

93 

94 

49 

27 

43 

61 

52 

73 

61 

30 

15 

17 

12 

14 

21 

38 

13 

42 

60 

73 

66 

94 

99 

43 

Source : Eurofactor, Baromètres 2006, 2007 and 2008 

78 

In this case, 3000 SMEs from 6 to 500 employees in 7 EU Member States, essentially involved in B2B 
transactions. 

EN 

60 

   EN 

 
 
 
 
                                                 
Table 3.3: Payment duration in Member States 

Average payment term 
in days  

Average payment term 
in days  

Average payment 
duration in days 

Average payment 
duration in days 

B2B  

(2008) 

37.0 

-- 

30.0 

29.4 

30.0 

20.7 

39.1 

84.0 

73.0 

49.0 

68.0 

67.2 

21.5 

30.3 

-- 

26.0 

-- 

26.1 

27.0 

29.7 

47.1 

-- 

-- 

31.0 

21.0 

27.0 

33.2 

Public authorities  

(2008) 

49.0 

-- 

23.0 

27.5 

25.0 

15.3 

36.4 

95.0 

103.0 

57.0 

95.0 

55.4 

20.1 

30.0 

-- 

30.0 

-- 

27.2 

27.0 

27.7 

57.4 

-- 

-- 

28.0 

20.0 

28.0 

30.0 

B2B  

(2008) 

50.0 

-- 

49.0 

35.5 

36.0 

35.5 

57.5 

110.0 

89.0 

65.0 

88.0 

95.8 

41.5 

46.2 

-- 

45.0 

-- 

40.0 

35.0 

46.8 

80.1 

-- 

-- 

39.0 

27.0 

34.0 

51.0 

Public authorities  

(2008) 

75.0 

-- 

33.0 

35.8 

40.0 

19.8 

50.7 

157.0 

144.0 

71.0 

135.0 

72.4 

31.3 

39.8 

-- 

55.0 

-- 

46.0 

47.0 

47.9 

137.8 

-- 

-- 

35.0 

24.0 

35.0 

48.0 

Belgium 

Bulgaria 

Czech Republic 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

United Kingdom 

Source : Intrum Justitia, European Payment Index 2008 

Table 3.4: Which measures do you take to protect your company from bad debt? 

Credit insurance (commercial) 

Advance payment 

Active collection procedures (internal) 

External collection services 

Letter of Credit (ILC) 

Credit check 

30% 

17% 

13% 

11% 

6% 

4% 

Cash on delivery 

Guarantees 

Retention of title 

Factoring 

Attorney, Bailiff, lawyer 

Bill of exchange 

3% 

4% 

2% 

1% 

2% 

1% 

Source : Atradius Payment Practices Barometer – Winter 2007 

Table 3.5: Payment delays in Member States 

Belgium 

Bulgaria 

EN 

Average payment delay in 
days  

Average payment delay in 
days  

Average payment delay in 
days 

B2B  

(2008) 

13.0 

-- 

Public authorities  

B2B + Public authorities 

(2008) 

26.0 

-- 

(2007) 

15.3 

-- 

61 

   EN 

 
 
 
Czech Republic 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

United Kingdom 

Belgium 

Germany 

Spain 

France 

Italy 

19.0 

6.1 

16.0 

14.8 

18.4 

26.0 

16.0 

16.0 

20.0 

28.6 

20.0 

15.9 

-- 

19.0 

-- 

13.9 

8.0 

17.1 

33.0 

-- 

-- 

8.0 

6.0 

7.0 

17.8 

10.0 

8.3 

15.0 

4.5 

14.3 

62.0 

41.0 

14.0 

40.0 

17.0 

11.2 

9.8 

-- 

25.0 

-- 

18.8 

20.0 

20.2 

80.4 

-- 

-- 

7.0 

4.0 

7.0 

18.0 

25.0 

7.2 

15.5 

8.5 

14.3 

27.4 

15.2 

14.3 

23.9 

32.4 

11.9 

14.9 

-- 

16.3 

-- 

13.2 

16.0 

17.1 

39.9 

-- 

-- 

20.1 

6.0 

6.9 

17.6 

Source : Intrum Justitia, European Payment Index 2008 

Table 3.6: Payment delays in Member States 

Average payment delays in 
days (2007) 

Average payment delays in 
days (2007) 

16.2 

9.4 

14.8 

12.2 

12.6 

Ireland 

Netherlands 

Portugal  

United Kingdom 

19.6 

11.7 

24.1 

13.6 

Source : Altares, Les comportements de paiement des enterprises en Europe, Bilan 2007 

Table 3.7: Value of turnover paid late by Member States (€m) 

Turnover (€m) 

Days 
delay 

SME 

Large  

175,534 
57,706 
95,614 
949,861 
7,243 
74,608 
64,226 
453,925 

129,806 
42,674 
70,706 
702,419 
5,357 
55,172 
47,494 
335,675 

13 
19 
6 
16 
15 
18 
26 
16 

Adjust-
ment 
factor 
for days 
delay 

Adjustment factor 
for volume of 
turnover 

Value turnover paid 
late (€m, rounded) 

SMEs 

Large 

SMEs 

Large  

0.81 
1.19 
0.38 
1.00 
0.93 
1.15 
1.63 
1.00 

0.04 
0.01 
0.02 
0.19 
0.00 
0.01 
0.01 
0.09 

0.04 
0.01 
0.02 
0.19 
0.00 
0.01 
0.01 
0.09 

32,507 
15,619 
8,308 
216,497 
1,527 
19,556 
23,788 
103,461 

20,616 
9,906 
5,269 
137,306 
969 
12,403 
15,087 
65,617 

BE 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 

EN 

62 

   EN 

 
 
 
 
 
 
 
16 
20 
29 
20 
16 
19 
14 
8 
17 
33 
8 
6 
7 
18 
16 

546,365 
459,411 
3,750 
5,357 
6,963 
38,924 
186,050 
82,490 
91,775 
54,637 
13,391 
54,279 
99,631 
595,824 
3,628,151 

FR 
738,835 
IT 
621,249 
CY 
5,070 
LV 
7,243 
LT 
9,417 
HU 
52,636 
NL 
251,590 
AT 
111,550 
PL 
124,105 
PT 
73,883 
SK 
18,109 
FI 
73,401 
SE 
134,729 
UK 
805,716 
Total 
4,906,249 
Source: RPA Study. 
Sources of Data:  
- Turnover B2B: Eurostat 
- Days delay: private survey. 
Countries not figuring in Table due to lack of data: BG, LU, MT, RO, SI. 

1.00 
1.25 
1.79 
1.25 
0.99 
1.19 
0.87 
0.50 
1.07 
2.06 
0.50 
0.38 
0.44 
1.11 
Baseline 

0.15 
0.12 
0.00 
0.00 
0.00 
0.01 
0.05 
0.02 
0.02 
0.01 
0.00 
0.01 
0.03 
0.16 
- 

0.15 
0.12 
0.00 
0.00 
0.00 
0.01 
0.05 
0.02 
0.02 
0.01 
0.00 
0.01 
0.03 
0.16 
- 

168,399 
176,997 
2,066 
2,064 
2,133 
14,246 
49,817 
12,712 
30,231 
34,732 
2,064 
6,274 
13,435 
204,302 
1,140,734 

106,801 
112,255 
1,310 
1,309 
1,353 
9,035 
31,595 
8,062 
19,173 
22,028 
1,309 
3,979 
8,521 
129,572 
723,474 

EN 

63 

   EN 

 
Table 3.8: Value of turnover against which interest is claimed (€m) 

MS 

Turnover paid late 

Value of turnover paid late against whic
interest is claimed 

SME 

Large 

SME 

Large 

BE 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 
FR 
IT 
CY 
LV 
LT 
HU 
NL 
AT 
PL 
PT 
SK 
FI 
SE 
UK 
Total 

22,755
10,933
5,816
151,548
1,069
13,689
16,651
72,422
117,879
123,898
1,446
1,445
1,493
9,973
34,872
8,899
21,162
24,313
1,445
4,392
9,404
143,012
798,514

20,616
9,906
5,269
137,306
969
12,403
15,087
65,617
106,801
112,255
1,310
1,309
1,353
9,035
31,595
8,062
19,173
22,028
1,309
3,979
8,521
129,572
723,474

3,072
1,476
785
20,459
144
1,848
2,248
9,777
15,914
16,726
195
195
202
1,346
4,708
1,201
2,857
3,282
195
593
1,270
19,307
107,799

3,760
1,807
961
25,043
177
2,262
2,752
11,968
19,479
20,474
239
239
247
1,648
5,762
1,470
3,497
4,018
239
726
1,554
23,632
131,952

Source: RPA Study. 

Note:  

The figures for turnover paid late to SMEs have been adjusted downwards from those in Table 37 on 
the assumption that 30% of the turnover paid late would not have generated €5 in interest and might 
therefore either not be eligible for late payment interest under national legislation, or not worthwhile. 
The responses from a questionnaire on claims for late payment interest have been used to calculate 
an  average  claim  rate  for  all  companies.  The  average  claim  rate  for  SMEs  is  13.5%  of  all  late 
payments and the equivalent rate for large companies is 18.24%. Applying these average claim rates 
to the total turnover paid late to SMEs and large companies produces the results given in this table. 

EN 

64 

   EN 

 
 
Table 3.9: Value of late payment interest successfully claimed (€m) 

SMEs 

Large Companies 

3.88 
2.72 
0.76 
34.67 
0.21 
3.30 
6.19 
15.19 
24.72 
32.48 
0.54 
0.38 
0.31 
2.82 
6.35 
1.02 
5.28 
10.52 
0.35 
0.94 
39.43 
192 

4.22 
2.97 
0.83 
37.78 
0.23 
3.60 
6.74 
16.55 
26.93 
35.39 
0.59 
0.41 
0.34 
3.07 
6.92 
1.11 
5.76 
11.46 
0.38 
1.03 
42.96 
209 

MS 
BE 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 
FR 
IT 
CY 
LV 
LT 
HU 
NL 
AT 
PL 
PT 
FI 
SE 
UK 
Total 

Source: RPA Study. 

Note: 

Although  the  estimates  given  in  table  3.8  represent  the  amounts  being  claimed,  not  all  claims  are 
successful. Companies responding to the questionnaire indicated that for SMEs only 32% on average 
of  the  above  claims  for  interest  were  indeed  successful,  with  the  figure  for  large  companies  being 
29% of claims. Applying these percentages to the figures in Table 3.8 to late payment interest rates 
and  average delays  in  payments  provides  the basis  for  calculating  the  value  of  interest  successfully 
claimed, presented in this table. 

EN 

65 

   EN 

 
Table 3.10: Value of bank loans to SMEs to finance late payments (€m) 

Turnover 
Value on 
which late 
payments has 
been claimed 
successfully 
by SMEs 

Days credit 
taken 

% of 
companies 
financing late 
payments by 
bank loans 

Bank interest 
rate 

Cost of credit 
to cover late 
payments 

BE 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 
FR 
IT 
CY 
LV 
LT 
HU 
NL 
AT 
PL 
PT 
SK 
FI 
SE 
UK 
Total 

990 
475 
253 
6,591 
46 
595 
724 
3,150 
5,127 
5,388 
63 
63 
65 
434 
1,517 
387 
920 
1,057 
63 
191 
409 
6,220 
34,728 

Source: RPA Study. 

Note:  

13 
19 
6 
16 
15 
18 
26 
16 
16 
20 
29 
20 
16 
19 
14 
8 
17 
33 
8 
6 
7 
18 

58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 
58.5% 

9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 
9% 

1.9 
1.3 
0.2 
15.2 
99.3 
1,.6 
2.7 
7.3 
11.8 
15.5 
0.3 
0.3 
0.1 
1.1 
3.0 
0.4 
2.3 
5.0 
0.7 
0.2 
0.4 
16.0 
86.8 

It is argued that small firms often have higher financing costs relative to large companies as they do 
not hold such strong bargaining positions when applying for finance to banks. Table 3.10 uses the 
turnover value on which late payments has been claimed successfully by SMEs to provide estimates 
for the value of finance that is required by SMEs from banks to finance late payments. Considering 
that  an  online  consultation  revealed  that  58.5%  of  respondents  said  that  they  resorted  to  bank 
finance  to  cover  late  payments,  this  figure  (an  overestimate  for  the  total  amount  of  late  payments 
financed through bank loans since it is unlikely that these respondents would have covered ALL late 
payments  through  bank  loans)  was  used  to  estimate  the  value  of  credit  together  with  an  assumed 
bank loan rate of 9% for SMEs and an assumption that the length of the loans taken are equivalent 
to the average days delay on payment in each Member State. 

EN 

66 

   EN 

 
 
 
 
 
 
Table 3.11: Percentage of late payments owed by different sectors 

0 

90 

75 

50 

25 

10 

NA 

100 

7.9 
5.7 

22.2 
13.8 

22.2 
13.2 

12.7 
10.1 

14.3 
13.2 

Percentage of late payments 
Public sector 
Large comp %  
Small comp %  
Private sector 
Large comp % 
Small comp % 
Source: RPA Study. The first column of this table indicates, for example, that 22.2% of the large 
responding economic operators and 13.8% of the small respondents received all payments by public 
authorities on time. It also shows that 4.8% of the large responding economic operators and 3.8% of the 
small respondents never experience late payment by private businesses. The last column of this table 
indicates that all payments made by public authorities were late for 3.2% of the large responding 
economic operators and 8.2% of the small respondents. 17.5% of the large responding economic 
operators and 20.8% of the small respondents are always paid late by private businesses.  

15.9 
10.1 

17.5 
20.8 

14.3 
17.0 

20.6 
21.4 

11.1 
9.4 

7.9 
10.1 

9.5 
22.0 

7.9 
13.8 

7.9 
7.5 

4.8 
3.8 

3.2 
8.2 

Table 3.12: Option 3a/1: Potential direct costs of contract renegotiation for companies 
in 10 Member States with agreed terms >30 days (€m) 

Total  number  of  companies  in  countries  where 
average agreed payment period is >30 days 
25%  of  companies  holding  contracts  with  >30  day 
payment terms renegotiate 1 contract 
15% of companies holding contracts with >30 days 
payment terms renegotiate 1 contract 
Costs of contract renegotiation 
Total  direct  costs  of  changes  to  contracts  -  25% 
companies 
Total  direct  costs  of  changes  to  contracts  -  15% 
companies 
Source: RPA Study. 

SMEs 

Large 

Total 

10,673,617 

17,845 

10,691,462 

2,668,404 

4,461 

2,672,865 

1,601,043 
€ 5,000 

2,677 
€ 5,000 

1,603,719 

13,342 

8,005 

22 

13 

13,364 

8,019 

Note: 
This table provides estimates of what the one-off transitional costs of contract renegotiation might be, 
assuming that 25% of companies holding contracts with greater than 30 day payment periods may seek 
to  renegotiate  one  contract  or  that  15%  of  such  companies  would  seek  to  renegotiate  one  contract 
(based  on  20%  of  companies  believing  that  this  measure  would  have  an  impact  on  their  business 
according to a survey). Note that it is assumed that on average only one contract would be renegotiated 
per company to take into account the fact that a large proportion of contracts are likely to be of a short 
duration or are completed within weeks or months of any new harmonised contract terms entering into 
use.  Furthermore,  it  has  been  assumed  that  the  average  costs  of  familiarisation  and  renegotiating 
contracts for these companies would be €5,000 to allow for the time and expenses of both the buyer 
and  supplier  (costs  of  senior  management  time,  legal  costs,  etc);  obviously,  the  actual  costs  of 
familiarisation  and  negotiations  may  be  minor  in  some  cases  and  far  higher  in  others  (e.g.  where 
considerable legal input is required to the negotiations). 

EN 

67 

   EN 

 
 
 
 
 
Table 3.13: Option 3a/2: Public procurement by Member States (billion €)  

Member State  

2002 

2003 

2004 

2005 

2006 

Belgium 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta  
Netherlands 
Austria 
Poland 
Portugal 
Slovenia 
Slovakia  
Finland 
Sweden 
UK 
Total 
Source: RPA Study. 

Note:  

40.58 
n/a 
33.29 
366.04 
n/a 
16.73 
21.12 
93.56 
235.76 
147.79 
n/a 
n/a 
n/a 
3.57 
n/a 
n/a 
98.94 
35.16 
n/a 
16.86 
n/a 
n/a 
22.55 
50.19 
282.52 
1,464.65 

42.54
n/a
34.50
371.46
n/a
16.97
22.18
100.54
247.89
162.75
n/a
n/a
n/a
3.73
n/a
n/a
104.41
36.06
n/a
17.65
n/a
n/a
23.99
51.60
281.20
1,517.46

45.42
22.65
32.33
348.86
1.26
17.90
19.31
116.17
282.19
209.65
1.54
1.98
2.34
4.62
16.11
0.61
116.12
39.44
32.24
22.70
4.77
7.75
25.52
50.60
309.14
1,731.23

49.27 
20.46 
29.61 
364.16 
2.11 
20.79 
18.78 
126.88 
303.80 
204.12 
1.53 
2.15 
2.70 
4.16 
16.33 
0.77 
123.60 
45.13 
38.97 
23.23 
4.08 
8.76 
25.62 
52.86 
313.13 
1,802.97 

46.78
30.23
31.99
375.47
2.30
22.45
19.64
142.88
319.64
212.66
1.73
2.63
3.91
4.59
19.41
0.77
136.06
44.02
50.17
23.99
6.01
11.40
27.14
56.65
351.38
1,943.92

The  above  figures  are  derived  from  national  accounts.  Since  2004,  the  value  of  contribution  of  the 
Utilities to these totals is extrapolated either from data in the harmonised Input/Output tables available 
from Eurostat, or from the latest available company annual reports. This change has been explained in 
more detail elsewhere. For this reason data from 2004 and after is not strictly comparable with 2003 or 
earlier data. It should also be noted that National Accounts figures for 2005 and earlier years may have 
been revised since this indicator was last issued.  

EN 

68 

   EN 

 
 
 
 
Table 3.14: Option 3a/2: Payment duration (public authorities to businesses) 

Member 
State  

Average 
payment 
term in days  

Average 
payment 
duration in 
days 

Payment 
duration: 
number of 
days 
exceeding 
30 days 

Member 
State  

Average 
payment 
term in days 

Average 
payment 
duration in 
days 

Payment 
duration: 
number of 
days 
exceeding 
30 days 

Belgium 
Bulgaria 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 

49.0 
-- 
23.0 
27.5 
25.0 
15.3 
36.4 
95.0 
103.0 
57.0 
95.0 
55.4 
20.1 

75.0 
-- 
33.0 
35.8 
40.0 
19.8 
50.7 
157.0 
144.0 
71.0 
135.0 
72.4 
31.3 

Source: Tables 3.3 and 3.5 

45.0 Lithuania 

-- Luxembourg

3.0 Hungary 
5.8 Malta 

10.0 Netherlands 
-10.2 Austria 
20.7 Poland 
127.0 Portugal 
114.0 Romania 
41.0 Slovenia 
105.0 Slovakia 
42.4 Finland 
1.3 Sweden 
U.K. 

30.0
--
30.0
--
27.2
27.0
27.7
57.4
--
--
28.0
20.0
28.0
30.0

39.8 
-- 
55.0 
-- 
46.0 
47.0 
47.9 
137.8 
-- 
-- 
35.0 
24.0 
35.0 
48.0 

9.8
--
25.0
--
16.0
17.0
17.9
107.8
--
--
5.0
-6
5
18.0

EN 

69 

   EN 

 
 
 
 
 
Table 3.15: Option 3a/2: Impact of maximum period of 30 days for payments by public 
authorities to businesses (procurement expenditure)  
Scenario on the basis of average number of days of earlier payment 

Annual 
effective 
interest rate  

Average 
number of 
days of earlier 
payment 
45 
-- 
3 
5.8 
10 
0 
20.7 
127 
114 
41 
105 
42.4 
1.3 
9.8 
-- 
25 
-- 
16 
17 
17.9 
107.8 
-- 
-- 
5 
0 
5 
18 

4 
8 
4.3 
3.7 
3.2 
(7.2) 
4.4 
5.2 
4 
3.6 
4.5 
4.5 
(10.3) 
(9) 
4 
7.9 
4.5 
3.8 
4 
5.7 
4.1 
(14) 
4.5 
4.7 
3.9 
2.8 
3.6 

Belgium 
Bulgaria 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 
Netherlands 
Austria 
Poland 
Portugal 
Romania 
Slovenia 
Slovakia 
Finland 
Sweden 
U.K. 
Total 
Source: European Commission ECFIN. Annual effective interest rate is long term interest and short term (proxied) 
for  Member  States  between  brackets.  Average  number  of  days  of  earlier  payment  based  on  the  average  payment 
duration set out in Table 3.14. 
(1) Procurement figures for 2006 – See Table 3.13. 
(2) Procurement figures for 2009, assuming similar annual growth in the period 2006-2009 as in 2004-2006. 

Budgetary 
cost in billion 
euro for 
public 
authorities (2) 
0.24 
-- 
0.02 
0.02 
0.37 
0.00 
0.08 
0.36 
2.47 
1.57 
2.81 
0.01 
0.00 
0.02 
-- 
0.14 
-- 
0.29 
0.10 
0.29 
0.32 
-- 
-- 
0.01 
0.00 
0.03 
0.76 
9.9 

Budgetary 
cost in billion 
euro for 
public 
authorities (1)
0.231 
-- 
0.011 
0.019 
0.329 
0.0 
0.056 
0.355 
1.785 
1.293 
2.753 
0.009 
0.001 
0.009 
-- 
0.105 
-- 
0.227 
0.082 
0.140 
0.290 
-- 
-- 
0.007 
0.0 
0.022 
0.624 
8.3 

Additional 
liquidity to 
companies in 
billion euro 
(1) 
5.8 
-- 
0.2 
0.5 
10.3 
0.0 
1.3 
6.8 
44.6 
35.9 
61.2 
0.2 
0.0 
0.1 
-- 
1.3 
-- 
6.0 
2.1 
2.5 
7.1 
-- 
-- 
0.2 
0.0 
0.8 
17.3 
204.1 

Additional 
liquidity to 
companies in 
billion euro 
(2) 
6.03 
-- 
0.40 
0.50 
11.51 
0.00 
1.82 
7.01 
61.85 
43.54 
62.50 
0.24 
0.01 
0.25 
-- 
1.78 
-- 
7.64 
2.43 
5.14 
7.71 
-- 
-- 
0.29 
0.00 
0.92 
21.13 
242.7 

EN 

70 

   EN 

 
 
  
 
  
 
Table 3.16: Option 3a/2: Impact of maximum period of 30 days for payments by public 
authorities to businesses (procurement expenditure)  
Scenario on the basis of the reduction of the average payment term 

Annual 
effective 
interest rate  

Reduction of 
average 
payment term 
19 
-- 
0 
0 
0 
0 
6.4 
65 
73 
27 
65 
25.4 
0 
0 
-- 
0 
-- 
0 
0 
0 
27.4 
-- 
-- 
0 
0 
0 
 0 

4 
8 
4.3 
3.7 
3.2 
(7.2) 
4.4 
5.2 
4 
3.6 
4.5 
4.5 
(10.3) 
(9) 
4 
7.9 
4.5 
3.8 
4 
5.7 
4.1 
(14) 
4.5 
4.7 
3.9 
2.8 
3.6 

Belgium 
Bulgaria 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 
Netherlands 
Austria 
Poland 
Portugal 
Romania 
Slovenia 
Slovakia 
Finland 
Sweden 
U.K. 
Total 
Source: European Commission ECFIN. Annual effective interest rate is long term interest and short term (proxied) 
for Member States between brackets. Reduction of average payment term based on the average payment term set 
out in Table 3.14. 
(1) Procurement figures for 2006 – See Table 3.13. 
(2) Procurement figures for 2009, assuming similar annual growth in the period 2006-2009 as in 2004-2006. 

Budgetary 
cost in billion 
euro for 
public 
authorities (2) 
0.10 
-- 
0 
0 
0 
0 
0.02 
0.19 
1.58 
1.03 
1.74 
0.01 
0 
0 
-- 
0 
-- 
0 
0 
0 
0.08 
-- 
-- 
0 
0 
0 
 0 
4.8 

Budgetary 
cost in billion 
euro for 
public 
authorities (1)
0.097 
-- 
0 
0 
0 
0 
0.017 
0.182 
1.143 
0.851 
1.704 
0.005 
0 
0 
-- 
0 
-- 
0 
0 
0 
0.074 
-- 
-- 
0 
0 
0 
 0 
4.1 

Additional 
liquidity to 
companies in 
billion euro 
(1) 
2.4 
--  
 0 
 0 
 0 
 0 
0.4 
3.5 
28.6 
23.6 
37.9 
0.1 
 0 
 0 
 -- 
 0 
 -- 
 0 
 0 
 0 
1.8 
 -- 
 -- 
 0 
 0 
 0 
 0 
98.3 

Additional 
liquidity to 
companies in 
billion euro 
(2) 
2.55 
--  
 0 
 0 
 0 
 0 
0.56 
3.59 
39.61 
28.67 
38.69 
0.14 
0  
 0 
 -- 
 0 
 -- 
 0 
 0 
 0 
1.96 
--  
 -- 
 0 
 0 
 0 
 0 
115.8 

EN 

71 

   EN 

 
  
 
Table 3.17: Option 3a/2: Impact of maximum period of 30 days for payments by public 
authorities to businesses (procurement expenditure for 2009) – Average scenario 

Scenario Table 3.15 

Scenario Table 3.16 

Average scenario 

Belgium 
Bulgaria 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 
Netherlands 
Austria 
Poland 
Portugal 
Romania 
Slovenia 
Slovakia 
Finland 
Sweden 
U.K. 
Total 
Source: Tables 3.15 and 3.16, based on estimated procurement figures for 2009, assuming similar annual growth in 
the period 2006-2009 as in 2004-2006. 

Additional 
liquidity to 
companies in 
billion euro 
4.29 
-- 
0.20 
0.25 
5.84 
0.00 
1.19 
5.30 
50.73 
36.10 
50.59 
0.19 
0.00 
0.00 
-- 
0.89 
-- 
3.82 
1.21 
2.57 
4.83 
-- 
-- 
0.14 
0.00 
0.46 
10.56 
179.11 

Additional 
liquidity to 
companies in 
billion euro  
6.03 
-- 
0.40 
0.50 
11.51 
0.00 
1.82 
7.01 
61.85 
43.54 
62.50 
0.24 
0.01 
0.25 
-- 
1.78 
-- 
7.64 
2.43 
5.14 
7.71 
-- 
-- 
0.29 
0.00 
0.92 
21.13 
242.7 

Additional 
liquidity to 
companies in 
billion euro 
2.55 
--  
0.00 
0.00 
0.00 
0.00 
0.56 
3.59 
39.61 
28.67 
38.69 
0.14 
0.00 
0.00 
 -- 
0.00 
 -- 
 0.00 
0.00 
0.00 
1.96 
-- 
-- 
 0.00 
 0.00 
 0.00 
 0.00 
115.8 

Budgetary 
cost in billion 
euro for 
public 
authorities 
0.17 
-- 
0.01 
0.01 
0.18 
0.00 
0.05 
0.27 
2.03 
1.30 
2.22 
0.01 
0.00 
0.00 
-- 
0.07 
-- 
0.14 
0.05 
0.14 
0.20 
-- 
-- 
0.01 
0.00 
0.01 
0.38 
7.25 

Budgetary 
cost in billion 
euro for 
public 
authorities 
0.24 
-- 
0.02 
0.02 
0.37 
0.00 
0.08 
0.36 
2.47 
1.57 
2.81 
0.01 
0.00 
0.02 
-- 
0.14 
-- 
0.29 
0.10 
0.29 
0.32 
-- 
-- 
0.01 
0.00 
0.03 
0.76 
9.9 

Budgetary 
cost in billion 
euro for 
public 
authorities 
0.10 
-- 
0.00 
0.00 
0.00 
0.00 
0.02 
0.19 
1.58 
1.03 
1.74 
0.01 
0.00 
0.00 
-- 
0.00 
-- 
0.00 
0.00 
0.00 
0.08 
-- 
-- 
0.00 
0.00 
0.00 
 0.00 
4.8 

EN 

72 

   EN 

 
 
  
Table 3.18: Option 3b: Interest successfully claimed at different average rates of claim 
made (@current late payment interest rates) / € m 

Ave. rate of 
claim = 
13.5% 

Ave. rate of 
claim = 
18.25% 

Ave. rate of 
claim = 
18.5% 

Ave. rate of 
claim = 
23.2% 

Ave. rate of 
claim = 
23.5% 

SME 
3.9 
2.7 
0.8 
34.7 
0.2 
3.3 
6.2 
15.2 
24.7 
32.5 
0.5 
0.4 
0.3 
2.8 
6.4 
1.0 
5.3 
10.5 
0.3 
0.9 
39.4 
192.1 

Large 
4.2 
3.0 
0.8 
37.8 
0.2 
3.6 
6.7 
16.5 
26.9 
35.4 
0.6 
0.4 
0.3 
3.1 
6.9 
1.1 
5.8 
11.5 
0.4 
1.0 
43.0 
209.3 

SME 
5.3 
3.7 
1.0 
47.5 
0.3 
4.5 
8.5 
20.8 
33.9 
44.5 
0.7 
0.5 
0.4 
3.9 
8.7 
1.4 
7.2 
14.4 
0.5 
1.3 
54.0 
263.2 

Large 
5.4 
3.8 
1.1 
48.1 
0.3 
4.6 
8.6 
21.1 
34.3 
45.1 
0.8 
0.5 
0.4 
3.9 
8.8 
1.4 
7.3 
14.6 
0.5 
1.3 
54.7 
266.6 

SME 
6.7 
4.7 
1.3 
60.4 
0.4 
5.7 
10.8 
26.4 
43.0 
56.5 
0.9 
0.7 
0.5 
4.9 
11.1 
1.8 
9.2 
18.3 
0.6 
1.6 
68.6 
334.3 

Ave. 
rate of 
claim = 
28.25% 

Large 
6.5 
4.6 
1.3 
58.5 
0.4 
5.6 
10.4 
25.6 
41.7 
54.8 
0.9 
0.6 
0.5 
4.8 
10.7 
1.7 
8.9 
17.7 
0.6 
1.6 
66.5 
324.0 

BE 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 
FR 
IT 
CY 
LV 
LT 
HU 
NL 
AT 
PL 
PT 
FI 
SE 
UK 
Total 

Source: RPA Study. 

Note: 

If  interest  rates  would  be  increased,  costs  to  debtors  are  likely  to  increase  as  a  result  of  the  higher 
interest  payments  on  late  payments.  This  table  establishes  an  estimate  for  the  value  of  late  payment 
interest successfully claimed by companies in 21 Member States at the prevailing interest rates, on the 
basis of a number of scenarios based on different higher levels of late payment interest and based on 
different assumptions regarding the willingness of creditor companies to make claims for late payment 
interest from their debtor customers. These figures have then been adjusted to produce predictions of 
the interest successfully claimed at a range of interest rates and with differing levels of average claim 
rate. Any changes in the amount of interest successfully claimed as a result of imposing more punitive 
late payment interest rates, whilst representing a cost to debtors, will also represent an equal benefit to 
creditors. Therefore, the overall net change in costs would be zero, with the measure effecting a change 
in distribution rather than an increase or decrease in costs. 
However, this scenario is quite optimistic since the fear of damaging commercial relationship may still 
refrain many economic operators from claiming interest. 

EN 

73 

   EN 

 
  
 
 
 
Table 3.19: Option 3d: Costs of imposing flat late payment fees on debtors 

Average  invoice 
value (SME)/€ 

No. of invoices paid 
late per annum 
(SMEs) (millions) 

2,000 
1,000 
500 

17 
35 
69 

Average  invoice 
value (Large)/€ 

No. of invoices paid 
late per annum 
(Large) (millions) 

Late payment fee costs /€million 

@ €100 

@ €200 

@ €300 

@ €400 

1,736 
3,473 
6,946 

3,473 
6,946 
13,891 

5,209 
10,418 
20,837 

6,946 
13,891 
27,782 

15,000 
10,000 
5,000 
Source: RPA Study. 

Note: 

3 
4 
8 

252 
378 
757 

505 
757 
1,514 

757 
1,135 
2,270 

1,009 
1,514 
3,027 

In  the  absence  of  a  scientifically  reliable  indication  of  the  number  of  successful  claims  for  late 
payment interest, an assumption is made on the average size of an invoice across all transactions of 
€1,000 for SMEs and for €10,000 for large companies. These figures are used to estimate the number 
of transactions which are paid late as follows: 

Number of transactions paid late = 

Turnover paid late and successfully claimed 
Average invoice size (€10,000 or €1,000) 

Applying this formula results in figures of approximately 17 million invoices paid late for SMEs and 
3.8 million invoices paid late for large companies.  
The  introduction  of  a  Late  Payment  Fee  would  imply  that  debtors  would  incur  these  fees  in  cases 
where the creditor is successful in claiming late payments. A range of potential fees is included in this 
table which set out the potential costs of imposing a flat late payment fee in the countries covered by 
the analysis. It also considers variations in the number of transactions that end up in successful claims 
for late payment interest by analysing different average levels of invoice value to provide some costs 
for different levels of late payment fee.  

Based on the above, the introduction of a flat rate fee for late payments, due on day 1 after the expiry 
of the agreed or default payment period might lead to costs ranging from €3.5bn to €13.9bn for SMEs 
debtors (assuming that the average invoice size is €1,000) and from €378 million to €1.5bn for large 
debtor  companies  (assuming  that  the  average  invoice  size  is  €10,000).  Since  these  costs  will  be 
incurred by the debtor and paid over to the creditor, the net effect is only one of redistribution, with 
the exception of any administrative costs (likely to be small) incurred by the creditor in claiming the 
fee. 

EN 

74 

   EN 

 
 
 
 
 
 
 
 
 
 
Table 3.20: Baseline scenario: Current payment terms and late payment patterns (B2B) 

 Payment terms and 
patterns 

Average 
payment 
term (in 
days) 

Average 
effective 
payment 
(in days) 

Negative impact late payment: 
costs due to late av. effective 
payment (late payment interest 
rate, table 1.1) in mio. Euro, 
based on turnover year 2006 

Positive impact late payment : 
value of late payment interest 
successfully claimed (table 3.9)) 

TOTAL 

SME 

Large 
companies

TOTAL 

SME 

Large 
companies

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

37,0 

-- 

30,0 

29,4 

30,0 

20,7 

39,1 

84,0 

73,0 

49,0 

68,0 

67,2 

21,5 

30,3 

-- 

26,0 

-- 

26,1 

27,0 

29,7 

47,1 

-- 

-- 

31,0 

21,0 

27,0 

33,2 

-- 

49,0 

35,5 

36,0 

35,5 

57,5 

50,0 

2,690.5

1,636.8

1,053.7

--

1,562.7

764.5

--

922.7

512.3

--

639.9

252.2

7,461.5

3,552.7

3,908.8

138.8

1,556.6

110,0 

1,919.6

89,0 

8,550.2

65,0 

13,316.4

113.5

879.4

1,509.3

5,739.3

7,406.9

88,0 

14,437.3

10,239.7

95,8 

41,5 

46,2 

-- 

164.3

276.1

318.5

--

140.3

219.9

206.6

--

25.4

677.3

410.3

2,810.9

5,909.5

4,197.7

24.0

56.2

111.9

--

45,0 

2,111.2

1,241.1

870.1

-- 

40,0 

35,0 

46,8 

80,1 

-- 

-- 

39,0 

27,0 

34,0 

--

3,579.1

1,163.8

3,415.3

2,716.0

--

--

184.3

530.4

1,162.0

--

--

2,231.9

1,347.2

738.5

2,020.5

1,916.5

--

--

91.1

254.0

649.9

425.3

1,394.8

799.5

--

--

93.2

276.4

512.1

51,0 

17,301.4

8,397.8

8,903.6

8,1

--

5,7

1,6

72,5

0,4

6,9

12,9

31,7

51,7

67,9

1,1

0,8

0,7

--

5,9

--

13,3

2,1

11,0

22,0

--

--

--

0,7

2,0

82,4

3,9 

-- 

2,7 

0,8 

4,2

--

3,0

0,8

34,7 

37,8

0,2 

3,3 

6,2 

15,2 

24,7 

32,5 

0,5 

0,4 

0,3 

-- 

2,8 

-- 

6,4 

1,0 

5,3 

0,2

3,6

6,7

16,6

26,9

35,4

0,6

0,4

0,3

--

3,1

--

6,9

1,1

5,8

10,5 

11,5

-- 

-- 

-- 

0,4 

0,9 

39,4 

--

--

--

0,4

1,0

43,0

Total 
209,3
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

34,700.1

85,320.5

50,620.4

192,1 

401,3

EN 

75 

   EN 

 
  
 
  
  
Table 3.21: Baseline scenario: Current payment terms and late payment patterns (B2B) 
Net effect of negative and positive impacts of Table 3.20 (in mio EURO) 

TOTAL 

SME 

Large companies 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

-2,682.4

--

-1,557.0

-762.9

-7,389.0

-138.4

-1,549.7

-1,906.7

-8,518.5

-13,264.7

-14,369.5

-163.2

-275.3

-317.9

--

-2,105.3

--

-3,565.9

-1,161.7

-3,404.3

-2,694.0

--

--

-184.3

-529.6

-1,160.0

-17,219.0

-1,632.9

--

-920.0

-511.6

-3,518.0

-113.2

-876.1

-1,503.1

-5,724.1

-7,382.1

-10,207.2

-139.7

-219.5

-206.3

--

-1,238.3

--

-2,225.5

-737.5

-2,015.2

-1,905.9

--

--

-91.1

-253.6

-648.9

-8,358.4

-1,049.4

--

-637.0

-251.3

-3,871.0

-25.2

-673.7

-403.6

-2,794.4

-5,882.6

-4,162.3

-23.4

-55.8

-111.5

--

-867.1

--

-1,340.3

-424.2

-1,389.1

-788.0

--

--

-93.2

-276.0

-511.1

-8,860.7

Total 
-34,490.9
-84,919.2
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

-50,428.4

EN 

76 

   EN 

 
 
Table 3.22: Optimum scenario: Reduction Payment terms to 30 days maximum, no longer 
late payment (effective payment equal to payment term) (B2B) 

Impact added liquidity due to 
reduction of payment terms 
(effective interest rates, see 
table 3.15 and 3.16) 

Impact added liquidity due to 
improved payment behaviour 
(late payment interest rates – 
Table 1.1) 

Net effect (in mio EURO, 
gains +, loss -) 

TOTAL 

SME 

Large 
compa-
nies 

TOTAL

SME 

Large 
compa-
nies 

TOTAL

SME 

Large 
compa-
nies 

Belgium 

610.0 

371.1 

238.9

4,139.2

2,518.2

1,621.0

4,749.2

2,889.2 

1,859.9

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

--

--

--

--

--

--

1,562.7

689.3

--

922.7

461.9

--

--

639.9

1,562.7

227.4

689.3

-- 

922.7 

461.9 

--

639.9

227.4

7,461.5

3,552.7

3,908.8

7,461.5

3,552.7 

3,908.8

51.6

42.2

9.4

51.6

42.2 

9.4

Ireland 

356.6 

201.4 

155.1

2,326.5

1,314.3

1,012.2

2,683.1

1,515.7 

1,167.4

Greece 

2,182.3 

1,715.8 

466.5

5 906.6

4,644.0

1,262.6

8,088.9

6,359.8 

1,729.1

Spain 

9,675.2 

6,494.5 

3,180.8

31 528.9

21,163.7

10,365.2

41,204.1

27,658.2 

13,546.0

France 

5,992,4 

3,333.1 

2,659,3

29,129.6

16,202.5

12,927.1

35,122.0

19,535.6 

15,586.4

Italy 

12,993.6 

9,215.7 

3,777.9

41,868.2

29,695.0

12,173.2

54,861.8

38,910.7 

15,951.1

Cyprus 

101.2 

86.4 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

-- 

3.6 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

2.3 

-- 

-- 

-- 

-- 

-- 

-- 

14.8

--

1.2

--

--

--

--

--

--

378.0

158.7

324.5

--

322.7

126.4

210.5

--

55.3

32.3

479.3

409.1 

--

-- 

70.1

--

114.0

328.1

212.8 

115.2

--

--

-- 

--

1,666.7

979.8

686.9

1,666.7

979.8 

686.9

--

--

--

--

-- 

2,574.9

1,605.7

969.2

2,574.9

1,605.7 

727.4

461.5

265.8

727.4

461.5 

--

969.2

265.8

3,355.4

1,985.0

1,370.4

3,355.4

1,985.0 

1,370.4

Portugal 

607,4 

428,6 

178,8

4,123.3

2,909.5

1,213.8

4,730.7

3,338.1 

1,392.6

Romania 

Slovenia 

-- 

-- 

Slovakia 

11.4 

Finland 

Sweden 

-- 

-- 

-- 

-- 

5.6 

-- 

-- 

--

--

--

--

--

--

--

--

--

--

-- 

-- 

--

--

5.8

207.4

102.5

104.9

218.8

108.1 

110.6

--

--

0.0

0.0

0.0

0.0

0.0 

0.0

664.0

371.3

292.7

664.0

371.3 

292.7

U.K. 

1,119.7 

543.5 

576.2

20,411.8

9,907.5

10,504.3

21,531.5

10,451.0 

11,080.5

Total 

33,653.4 

22,398.1 

11,255.3

159,256.2

99,499.8

59,756.4 192,750.9

121,771.4 

70,979.5

Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

EN 

77 

   EN 

 
  
 
Table 3.23: Optimum scenario: Reduction Payment terms to 30 days maximum, no longer 
late payment (effective payment equal to payment term) (B2B) 
Total net effect vs. Baseline Scenario (in mio EURO) 

TOTAL 

SME 

Large companies 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

2,066.8

1,256.3

--

5.7

-73.6

72.4

-86.8

1,133.3

6,182.2

32,685.7

21,857.2

40,492.4

316.1

--

10.2

--

-438.6

--

-990.9

-434.3

-48.9

2,036.7

--

--

34.4

-529.6

-496.0

4,312.5

--

2.7

-49.6

34.7

-71.1

639.6

4,856.7

21,934.1

12,153.4

28,703.5

269.4

--

6.5

--

-258.5

--

-619.9

-275.9

-30.2

1,432.2

--

--

17.0

-253.6

-277.6

2,092.6

810.5

--

3.0

-24.0

37.8

-15.7

493.7

1,325.5

10,751.6

9,703.8

11,788.8

46.7

--

3.7

--

-180.1

--

-371.1

-158.4

-18.7

604.5

--

--

17.4

-276.0

-218.5

2,219.8

Total 
36,488.6
107,831.6
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

71,343.0

EN 

78 

   EN 

 
 
Table 3.24: Realistic scenario: Reduction Payment terms to 30 days maximum, 
proportional reduction of late payment (effective payment equal to payment term) (B2B) 

Impact added liquidity due to 
reduction of payment terms 
(effective interest rates, see 
table 3.15 and 3.16) 

Impact added liquidity due to 
improved payment behaviour 
(late payment interest rates) 

Impact due to loss of 
interests successfully 
claimed by late payment 
(table 3.9 "interest 
successfully claimed"), 
proportional to ∆ payment 
delay 

TOTAL 

SME 

Large 
compa-
nies 

TOTAL

SME 

Large 
compa-
nies 

TOTAL

SME 

Large 
compa-
nies 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

610.0 

371.1 

238.9

1,957.7

1,191.0

766.7

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

--

--

--

--

--

--

0.0

0.0

0.0

0.0

--

0.0

0.0

0.0

0.0

--

0.0

0.0

0.0

0.0

356.6 

201.4 

155.1

1,132.1

639.6

492.6

2,182.3 

1,715.8 

466.5

5,221.0

4,104.9

1,116.0

9,675.2 

6,494.5 

3,180.8

28,015.1

18,805.1

9,210.0

5,992.4 

3,333.1 

2,659.3

20,976.7

11,667.7

9,309.0

12,993.6 

9,215.7 

3,777.9

35,498.8

25,177.5

10,321.3

101.2 

86.4 

14.8

304.7

260.1

44.6

-- 

3.6 

-- 

-- 

-- 

-- 

-- 

-- 

-- 

2.3 

-- 

-- 

-- 

-- 

-- 

-- 

--

1.2

--

--

--

--

--

--

0.0

9,2

--

0.0

--

0.0

0.0

0.0

0.0

5,9

--

0.0

--

0.0

0.0

0.0

0.0

3,2

--

0.0

--

0.0

0.0

0.0

3.8

--

0.0

0.0

0.0

0.0

3.4

11.4

28.2

37.2

57.5

0.9

0.0

0.0

--

0.0

--

0.0

0.0

0.0

607.4 

428.6 

178.8

2,393.4

1,688.9

704.5

12.8

-- 

-- 

11.4 

-- 

-- 

-- 

-- 

5.6 

-- 

-- 

--

--

5.8

--

--

--

--

29.0

0.0

0.0

--

--

14.3

0.0

0.0

--

--

14.7

0.0

0.0

1,119.7 

543.5 

576.2

4,778.0

2,319.1

2,458.8

--

--

--

--

0.0

19.3

1.8 

-- 

0.0 

0.0 

0.0 

0.0 

1.6 

5.5 

13.5 

17.8 

27.5 

0.4 

0.0 

0.0 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

6.1 

-- 

-- 

-- 

-- 

0.0 

9.2 

2.0

--

0.0

0.0

0.0

0.0

1.8

6.0

14.7

19.4

30.0

0.5

0.0

0.0

--

0.0

--

0.0

0.0

0.0

6.7

--

--

--

--

0.0

10.1

33,653.4 

Total 
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

100,315.7

22,398.1 

11,255.3

34,441.5

65,874.2

174.5

83.5 

91.0

EN 

79 

   EN 

 
  
 
Table 3.25: Realistic scenario: Reduction Payment terms to 30 days maximum, 
proportional reduction of late payment (effective payment equal to payment term) (B2B) 
Net effects 

Net effect (in mio EURO, gains +, loss -) 
on the basis of Table 3.24 

Total net effect vs. Baseline Scenario (in 
mio EURO) 

TOTAL 

SME 

Large 
companies 

TOTAL 

SME 

Large 
companies 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

2,563.9 

1,560.3

1,003.6

-- 

0.0 

0.0 

0.0 

0.0 

1,485.4 

7,391.9 

37,662.1 

26,931.9 

48,434.9 

405.0 

0.0 

12.7 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

--

0.0

0.0

0.0

0.0

839.4

5,815.3

25,286.1

14,983.0

34,365.7

346.1

0.0

8.2

--

0.0

--

0.0

0.0

0.0

--

0.0

0.0

0.0

0.0

646.0

1,576.6

12,376.1

11,948.9

14,069.2

58.9

0.0

4.5

--

0.0

--

0.0

0.0

0.0

2,988.0 

2,111.3

876.7

-- 

-- 

40.4 

0.0 

0.0 

--

--

20.0

0.0

0.0

--

--

20.4

0.0

0.0

-118.5

--

-1,557.0

-762.9

-7,389.0

-138.4

-64.4

5,485.2

29,143.7

13,667.2

34,065.4

241.8

-275.3

-305.2

--

-72.6 

-- 

-920.0 

-511.6 

-45.9

--

-637.0

-251.3

-3,518.0 

-3,871.0

-113.2 

-36.7 

4,312.2 

19,561.9 

7,600.8 

24,158.5 

206.4 

-219.5 

-198.1 

-- 

-25.2

-27.7

1,173.0

9,581.7

6,066.3

9,906.9

35.5

-55.8

-107.1

--

-2,105.3

-1,238.3 

-867.1

--

-3,565.9

-1,161.7

-3,404.3

294.1

--

--

-144.0

-529.6

-1,160.0

-- 

--

-2,225.5 

-1,340.3

-737.5 

-424.2

-2,015.2 

-1,389.1

205.4 

-- 

-- 

-71.2 

-253.6 

-648.9 

88.7

--

--

-72.8

-276.0

-511.1

5,878.4 

2,853.4

3,025.0

-11,340.6

-5,505.0 

-5,835.7

133,794.6 

Total 
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), 
and turnover table 3.28 

37,760.4 

45,605.9

88,188.7

48,875.4

11,115.0

EN 

80 

   EN 

 
 
 
Table 3.26: Worst scenario: Reduction Payment terms to 30 days, no reduction effective 
payment delay (B2B) 

Impact late payment: 
additional costs due to late 
av. effective payment vs. 
payment term (late payment 
interest rates) in mio. Euro, 
based on turnover 

Impact due to increase of 
interests successfully claimed 
by late payment (table 3.9 
"interest successfully 
claimed"), proportional to ∆ 
payment delay 

Net effect (in mio EURO, 
gains +, loss -)) 

TOTAL 

SME 

Large 
compa-
nies 

TOTAL

SME 

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

1,448.7 

881.4 

567.4

-- 

0.0 

0.0 

0.0 

0.0 

-- 

0.0 

0.0 

0.0 

0.0 

--

0.0

0.0

0.0

0.0

769.9 

434.9 

3,986.9 

3,134.7 

335.0

852.3

22,978.7 

15,424.4 

7,554.3

15,813.2 

8,795.6 

7,017.6

27,430.9 

19,455.4 

7,975.6

213.7 

182.4 

31.3

0.0 

6.0 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

0.0 

3.9 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

0.0

2.1

--

0.0

--

0.0

0.0

0.0

1.9

--

0.0

0.0

0.0

0.0

2.1

23.3

45.5

32.7

86,0

1.4

0.0

0.0

--

0.0

--

0.0

0.0

0.0

1,407.4 

993.1 

414.3

12.5

-- 

-- 

-- 

-- 

23.0 

11.4 

0.0 

0.0 

0.0 

0.0 

--

--

11.7

0.0

0.0

3,110.4 

1,509.7 

1,600.7

--

--

--

0.0

0.0

8,8

0.9

--

0.0

0.0

0.0

0.0

1.0

11.1

21.8

15.7

41,1

0.7

0.0

0.0

--

0.0

--

0.0

0.0

0.0

6.0

--

--

--

0.0

0.0

4,2

Large 
compa-
nies 

TOTAL

SME 

Large 
compa-
nies 

1.0

-1,446.8

-880.4 

-566.4

--

0.0

0.0

0.0

0.0

1.1

--

0.0

0.0

0.0

0.0

-- 

0.0 

0.0 

0.0 

0.0 

--

0.0

0.0

0.0

0.0

-767.8

-433.9 

-333.9

12.1

-3,963.7

-3,123.5 

-840.1

23.7

-22,933.2

-15,402.6 

-7,530.6

17.1

-15,780.5

-8,780.0 

-7,000.5

44,8

-27 344.9

-19 414.2 

-7 930.7

0.7

0.0

0.0

--

0.0

--

0.0

0.0

0.0

6.5

--

--

--

0.0

0.0

4,6

-212.3

-181.8 

-30.5

0.0

-6.0

--

0.0

--

0.0

0.0

0.0

0.0 

-3.9 

-- 

0.0 

-- 

0.0 

0.0 

0.0 

0.0

-2.1

--

0.0

--

0.0

0.0

0.0

-1,394.8

-987.1 

-407.8

--

--

-- 

-- 

--

--

-23.0

-11.4 

-11.7

0.0

0.0

0.0 

0.0 

0.0

0.0

-3,101.6

-1,505.5 

-1,596.1

77,188.8 

Total 
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), and 
turnover table 3.28 

-50,724.4 

-26,250.3

-76,974.7

50,826.8 

26,362.0

111.7

214.2

102.5

EN 

81 

   EN 

 
  
 
Table 3.27: Worst scenario: Reduction Payment terms to 30 days, no reduction effective 
payment delay (B2B) - Net effects 

Total net effect vs. Baseline Scenario (in 
mio EURO) 

Baseline scenario: net effect (in mio 
EURO) – Table 3.21 

TOTAL 

SME 

Large 
companies 

TOTAL 

SME 

Large 
companies 

-4,129.2 

-2,513.4

-1,615.8

-2,682.4

-1,632.9 

-1,049.4

-- 

-1,557.0 

-762.9 

--

-920.0

-511.6

--

-637.0

-251.3

-7,389.0 

-3,518.0

-3,871.0

-138.4 

-2,317.5 

-5,870.4 

-113.2

-1,310.0

-4,626.6

-25.2

-1,007.6

-1,243.7

-31,451.7 

-21,126.7

-10,324.9

--

-1,557.0

-762.9

-7,389.0

-138.4

-1,549.7

-1,906.7

-8,518.5

-29,045.2 

-16,162.1

-12,883.1

-13,264.7

-- 

-920.0 

-511.6 

--

-637.0

-251.3

-3,518.0 

-3,871.0

-113.2 

-876.1 

-1,503.1 

-5,724.1 

-7,382.1 

-41,714.4 

-29,621.4

-12,093.0

-14,369.5

-10,207.2 

-375.5 

-275.3 

-323.9 

-- 

-321.5

-219.5

-210.2

--

-54.0

-55.8

-113.7

--

-163.2

-275.3

-317.9

--

-139.7 

-219.5 

-206.3 

-- 

-2,105.3 

-1,238.3

-867.1

-2,105.3

-1,238.3 

-- 

-3,565.9 

-1,161.7 

-3,404.3 

-4,088.8 

-- 

-- 

-207.4 

-529.6 

-1,160.0 

--

-2,225.5

-737.5

-2,015.2

-2,893.0

--

--

-102.5

-253.6

-648.9

--

-1,340.3

-424.2

-1,389.1

-1,195.8

--

--

-104.9

-276.0

-511.1

--

-3,565.9

-1,161.7

-3,404.3

-2,694.0

--

--

-184.3

-529.6

-1,160.0

-- 

-2,225.5 

-1,340.3

-737.5 

-2,015.2 

-1,905.9 

-- 

-- 

-91.1 

-253.6 

-648.9 

-424.2

-1,389.1

-788.0

--

--

-93.2

-276.0

-511.1

-20,320.6 

-9,863.9

-10,456.7

-17,219.0

-8,358.4 

-8,860.7

-25.2

-673.7

-403.6

-2,794.4

-5,882.6

-4,162.3

-23.4

-55.8

-111.5

--

-867.1

--

Belgium 

Bulgaria 

Czech Rep. 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

U.K. 

-161,893.9 

Total 
Source : European Commission, DG ECFIN on the basis of average payment terms in days (table 3.3), 
and turnover table 3.28 

-101,152.7

-50,428.4 

-84,919.2

-60,741.2

-34,490.9

EN 

82 

   EN 

 
 
 
Table 3.28: Turnover 2006 (in mio EURO)1  

Turnover total 

SME 

large 
companies 

1 comments rf. 
NACE 1.1 

795,158  
61,857  
324,538  
435,662  
4,322,906  
36,043  
325,043  
283,671  
2,053,175  
3,197,686  
2,773,486  
22,073  
38,756  
48,074  
74,393  
238,573  
- 

483,750 
40,931 
191,637 
291,953 
2,058,297 
29,454 
183,619 
223,033 
 1,378,189 
 1,778,620 
 1,967,092 
18,844 
30,870 
31,188 
43,865 
140,246 
-

311,409 
20,926 
132,900 
143,709 
2,264,609 
6,589 
141,423 
60,638 
674,986 
 1,419,066 
806,393 
3,229 
7,886 
16,886 
30,528 
98,327 
-

989,307  

616,919 

372,388 

505,692  
595,103  
316,212  
175,821  
67,334  
88,531  
339,627  
605,897  
3,547,762  

320,883 
352,061 
223,129 
103,672 
42,630 
43,762 
162,632 
338,852 
 1,722,018 

184,809 
243,042 
93,083 
72,150 
24,704 
44,769 
176,995 
267,045 
 1,825,744 

excl. C 
2005 

excl.C and E40 

excl.CA and H 
excl.E40 
excl.C 

excl.E 
excl.CA 
excl.I62 and K70 
excl. E40 and I 
excl.C 

2005, excl.C and 
E40 
excl. C and E41 

excl.C and E41 

excl.C 

excl. C 

Belgium 
Bulgaria 
Czech Rep. 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 
Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 

Netherlands 

Austria 
Poland 
Portugal 
Romania 
Slovenia 
Slovakia 
Finland 
Sweden 
U.K. 

EN 

83 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
8.4. 

Annex 4: Detailed description of the baseline option 

(1) 

Actual  payment  periods  should  shorten,  on  the  one  hand,  with  the 
establishment of the  Single Euro Payments Area (SEPA)79 which will make 
all  electronic  payments  across  the  eurozone  as  easy  as  domestic  payments 
within  one  country  and,  on  the  other,  through  e-Invoicing  between  business 
partners80.  E-Invoicing  will  become  a  fundamental  part  of  an  efficient 
financial  supply  chain,  linking  the  internal  processes  of  enterprises  to 
payment systems. 

(2)  Many  hurdles  for  litigation  in  cross-border  cases  concerning  uncontested 
pecuniary claims will be cleared by Regulation (EC) No 1896/2006 creating a 
European  order  for  payment  procedure  which  applies  from  12  December 
2008, except in Denmark. This regulation simplifies,  speeds  up and reduces 
the costs of litigation in such cross-border cases by creating a European order 
for payment procedure. The new payment procedure also applies to cases in 
which  at  least  one  of  the  parties  is  domiciled  or  habitually  resident  in  a 
Member State other than the Member State of the court. When the application 
for  a  European  order  for  payment  fulfils  the  requirements  of  the  regulation 
and when the claim appears to be founded, as soon as possible and normally 
within 30 days of the lodging of the application, the competent court issues a 
European  order  for  payment.  European  orders  for  payment  are  recognised 
throughout  the  Member  States  without  any  intermediate  proceedings  in  the 
Member State of enforcement. 

(3) 

(4) 

Regulation  (EC)  No  805/2004  creating  a  European  enforcement  Order  for 
uncontested claims puts in place a system whereby a judgment certified as a 
European  enforcement  order  in  the  Member  State  of  origin  must  be 
recognised  and  enforced  in  the  other  Member  States  (except  Denmark) 
without  the  need  for  a  declaration  of  enforceability  and  without  any 
possibility  of  opposing  its  recognition.  Moreover,  a  judgment  certified  as  a 
European  enforcement  order  is  enforced  under  the  same  conditions  as  a 
judgment handed down in the Member State of enforcement. This regulation 
applies from 21 October 2005. 

Regulation (EC) No 861/2007 of the European Parliament and of the Council 
of 11 July 2007 establishes a European Small Claims Procedure intended to 
simplify  and  speed  up  litigation  concerning  small  claims  in  cross-border 
cases, and to reduce costs. The European Small Claims Procedure is available 
to litigants as an alternative to the procedures existing under the laws of the 
Member States. This Regulation also eliminates the intermediate proceedings 

79 

80 

Directive  2007/64/EC  on  payment  services  in  the  internal  market  amending  Directives  97/7/EC, 
2002/65/EC, 2005/60/EC and 2006/48/EC will complete  an EU-wide single market for payments and 
provides, amongst others, the necessary legal framework for the SEPA. Moreover, Regulation (EC) No 
2560/2001  on  cross-border  payments  in  euro  eliminates  the  difference  of  price  between  cross-border 
and national payments. 
Directive  2001/115/EC  of  20  December  2001  amending  Directive  77/388/EEC  with  a  view  to 
simplifying,  modernising  and  harmonising  the  conditions  laid  down  for  invoicing  in  respect  of  value 
added tax already requires Member States, since 1st January 2004, to recognise the validity of electronic 
invoices and allow cross-border electronic invoicing and electronic storage. 

EN 

84 

   EN 

 
                                                 
necessary to enable recognition and enforcement, in other Member States, of 
judgments  given  in  one  Member  State  in  the  European  Small  Claims 
Procedure.  This  Regulation  applies,  in  cross-border  cases,  to  civil  and 
commercial  matters,  whatever  the  nature  of  the  court  or  tribunal,  where  the 
value of a claim does not exceed EUR 2000 at the time when the claim form 
is  received  by  the  court  or  tribunal  with  jurisdiction,  excluding  all  interest, 
expenses and disbursements.  

(5) 

Certain  differences  between  national  rules  governing  jurisdiction  and 
recognition of judgments in civil and commercial matters hampered the sound 
operation of the internal market. These differences were eliminated with the 
entry  into  force  of  Regulation  (EC)  No  44/2001  on  jurisdiction  and  the 
recognition  and  enforcement  of  judgments  in  civil  and  commercial  matters 
which  unifies  the  rules  on  conflicts  of  jurisdiction  and  simplifies  the 
formalities  with  a  view  to  promoting  the  rapid  and  simple  recognition  and 
enforcement of judgments from Member States bound by the Regulation. 

(6)  Many  obstacles  to  the  services  rendered  by  debt  collection  agencies  will  be 
lifted  by  Directive  2006/123/EC  on  services  in  the  internal  market.  Debt 
recovery  services  which  are  carried  out  by  service  providers  outside  the 
context of judicial procedures will fully enjoy the benefits of the directive so 
that  economic  operators  will  have  a  broader  choice  of  debt  collection 
agencies.  Only  the  recovery  of  debts  by  recourse  to  judicial  proceedings  is 
included in the additional derogations from the freedom to provide services, 
laid down in Article 17 of the Directive. 

(7) 

(8) 

(9) 

Access to alternative dispute resolution will be improved and simplified in all 
Member States except Denmark by Directive 2008/52/EC on certain aspects 
of  mediation  in  civil  and  commercial  matters.  Its  objective  is  to  facilitate 
access  to  alternative  dispute  resolution  and  to  promote  the  amicable 
settlement of disputes. The directive will apply to cross-border disputes. 

Economic operators claiming late payment of invoices and/or interest for late 
payment  before  a  court  can  be  legal  or  natural  persons.  Natural  persons 
submitting such claim in a cross-border dispute are entitled, under very strict 
conditions, to receive appropriate legal aid in accordance with the conditions 
laid  down  in  Council  Directive  2002/8/EC  to  improve  access  to  justice  in 
cross-border  disputes  by  establishing  minimum  common  rules  relating  to 
legal aid for such disputes. 

Finally,  collective  insolvency  proceedings  which  entail  the  partial  or  total 
divestment  of  a  debtor  and  the  appointment  of  a  liquidator  are  governed  by 
Council regulation (EC) No 1346/2000 on insolvency proceedings to prevent 
the  transfer  of  assets  or  judicial  proceedings  from  one  Member  State  to 
another, seeking to obtain a more favourable legal position (forum shopping). 

EN 

85 

   EN 

 
8.5. 

Annex 5: Options discarded at an early stage 

Options 

Repeal of the 
Directive 

The creation of a 
European Fund 
aimed at providing 
finance to SMEs 

Reasons 

The Directive reflects the general principle that payment of interest 
constitutes  a  compensation  for  borrowed  capital.  The  payment  of 
interest for late payment is a logical consequence of this principle. 

Risk  of  fragmentation  of  the  internal  market:  If  the  Directive  is 
repealed,  it  is  likely  that,  over  time,  statutory  interest  rates  for  late 
payment  would  vary  widely  within  the  EU  or  would  not  even  be 
applied  so  that  it  would  become  increasingly  unattractive  to  sell 
products  and  services  in  Member  States  with  a  very  low  (or  no) 
statutory  interest  rate.  The  types  of  statutory  interest  would  also  vary 
between  Member  States,  some  of  which  would  opt  for  simple  interest 
while others would opt for compound interest, possibly combined with 
other measures. There is no doubt that the repeal of the Directive would 
worsen the situation in the medium and long term. It would also lead to 
fragmentation of the internal market. 

The  Directive  guarantees  that  interest  can  be  charged.  However, 
charging  interest  for  late  payment  is  only  a  possibility  and  not  an 
obligation  under  the  Directive.  It  is  therefore  important  that  this 
possibility  exists  throughout  the  EU  to  give  creditors  useful  tools  to 
encourage  payment  for  goods  and  services  on  time.  Many  enterprises 
have  included  this  possibility  in  their  contracts  or  general  commercial 
conditions.  38%  of  IPM  respondents  and  more  than  50%  of  EBTP 
respondents  apply  the  statutory  interest  rate  or  another  interest  rate  in 
their general commercial and payment conditions, while 42% of EBTP 
respondents and 56% of IPM respondents do not apply an interest rate 
at all.  

About 25% of IPM and EBTP respondents frequently or always claim 
interest  for  late  payment,  often  successfully:  figures  indicate  that, 
despite  the  weaknesses  of  the  Directive,  interest  for  late  payment  is 
still  an  effective  instrument  for  obtaining  compensation  for  late 
payment. 

Furthermore, not a single stakeholder requested or suggested the repeal 
of the Directive.  

Some  sources  suggested  the  creation  of  a  European  Fund  aimed  at 
providing finance to SMEs at no cost and based on accounts receivable. 
The  fund  would  be  financed  through  penalties  levied  on  large 
companies or public institutions that systematically pay late. The fund 
would  give  SMEs  access  to  late  payment  financing,  and  would  be 
responsible  for  recouping  payment  penalties  from  the  relevant  large 
companies or public institutions.  

However, such a fund would give rise to a large amount of red tape 
and  additional  bureaucracy,  as  mechanisms  would  have  to  be 
implemented  to  prevent  fraud.  The  measure  would  involve  significant 
administrative  expenditure  and  might  involve  complex  and  lengthy 
procedures  for  verifying  entitlement.  The  potential  for  fraudulent 
claims  on  the  fund  is  high.  Moreover,  it  could  even  send  the  wrong 

EN 

86 

   EN 

 
late  payers  could  encourage  companies 

signal to economic operators, the very existence of a fund backing up 
late 
failing 
systematically  or  even  to  postpone  payment  for  an  indefinite  period. 
Furthermore such a EU-wide instrument would also raise thorny issues 
with  regard  to  subsidiarity.  Therefore,  this  option  failed  to  meet  the 
proportionality principle.  

to  pay 

A new programme 
to enhance SME 
capabilities 

Another  possibility  was  the  development  of  a  programme  to  enhance 
SME  capabilities 
in  evaluating  clients  and  managing  account 
receivables. Such a programme could include measures to promote debt 
collection, factoring and credit insurance for SME’s. 

to 

small 

and  medium-sized 

However,  besides  national  and  local  programmes  specifically  targeted 
at SME’s, a number of European funding programmes are already 
the 
available 
Competitiveness  and  Innovation  Framework  Programme  (CIP)  ,  the 
European Regional Development Fund , the European Social Fund , the 
Joint  European  Resources  for  Micro  and  Medium  Enterprises 
(JEREMIE)  Programme and the European Investment Fund (EIF) . In 
addition,  the  European  Bank  for  Reconstruction  and  Development 
(EBRD)  currently  offers  a  EU/EBRD  SME  Finance  Facility,  which  is 
aimed at supporting the development of SMEs in the new EU Member 
States and the EU Accession Countries. These measures consist of: 

enterprises: 

- an SME Finance Facility (SMEFF): The objective of the SMEFF is to 
encourage  banks,  leasing  companies  and  investment  funds  to  expand 
and  maintain  long-term  financing  of  SME  operations  in  the  new 
Member States and certain applicant countries. The SMEFF is managed 
by  the  EIB,  EBRD,  CEB  and  KfW  and  consists  of  two  so-called 
‘windows’:  a  loan  window  providing  credit  lines  from  the  IFIs 
combined with incentives for the participating lending institutions, and 
an equity window providing equity capital. 

-  A  High  Growth  and  Innovative  SME  Facility  (GIF):  The  GIF  is 
managed by the EIF on behalf of the European Commission and is part 
of  the  Competitiveness  and  Innovation Framework  Programme,  2007-
2013 (CIP). It comprises two ‘windows’: 

1.  GIF  1,  which  promotes  early-stage  (seed  and  start-up)  investments 
through  specialised  Venture  Capital  Funds.  These  provide  capital  to 
innovative SMEs and co-invest in funds and other investment vehicles 
promoted by business angel networks. 

2.  GIF  2,  which  promotes  expansion-stage  investments  through 
specialised  risk  capital  funds  providing  equity  or  quasi-equity  for 
innovative SMEs with high-growth potential. 

-  An  SME  Guarantee  Facility  (SMEGF):  Also  part  of  the  CIP  and 
managed by the EIF, the SMEGF has four ‘windows’: a loan window 
providing  debt  financing  via  loans  or  leasing;  a  microcredit  window 
providing  guarantees  for  funds  which  gives  loans  of  smaller  amounts 
and  grants  to  partially  offset  high  administrative  costs;  an  equity 
window  providing  guarantees  for  equity  or  quasi-equity  fund 
in  SMEs;  and  a  securitisation  window  providing 
investments 
securitisation of SME debt-finance portfolios. 

EN 

87 

   EN 

 
-  A  Capacity  Building  Scheme  (CBS):  Again  under  the  CIP,  the  CBS 
has  two  parts:  a  partnership  action,  which  focuses  on  finance  for  eco-
innovation;  and  a  seed  capital  action  managed  by  the  EIF,  which 
provides  grants  to  venture  capital  funds  to  cover  in  part  their  start-up 
costs and for the long-term recruitment of staff with specific investment 
or technology expertise. 

Furthermore, most companies seem to assess the creditworthiness of 
their  business  customers  before  signing  contracts.  According  to  a 
survey  organised  for  the  RPA  Report,  almost  64%  of  companies 
actually  check  creditworthiness  while  a  slightly  higher  percentage  of 
big  companies  (75%  of  large  companies  responding)  than  smaller 
companies  (59%  of  the  smaller  companies)  do  so.  Only  13%  of 
companies  responded  that  they  did  not  check  creditworthiness.  In 
general, 
the  percentage  of  smaller  companies  not  checking 
creditworthiness  was  higher  at  17%  than  for  larger  companies  (1.6%. 
Most  respondents  confirmed  that  they  have  pre-set  and  readily 
identifiable strategies in place for managing credit and payment issues 
(with a higher percentage of larger companies having such strategies in 
place than smaller companies). See also the table at the bottom of this 
annex. 

Many businesses already use the services offered by debt collection, 
factoring  and  credit  insurance  organisations  which  are  service 
providers operating on a commercial basis. Debt collection agencies 
are  commercial  organisations  which  collect  debts  on  behalf  of  a 
creditor  for  a  commission  or  buy  a  debt  from  the  creditor  at  a 
discounted  price.  Factoring  agencies  are  commercial  organisations 
(factors) providing short-term finance based on purchase of the client’s 
account receivables at a discount. This transaction can mean the factor 
assuming  the  risk  for  late  payment  or  non-payment  (non-recourse 
factoring)  or  not  assuming  such  risks  (recourse  factoring).  Credit 
insurers are commercial organisations offering for a fee to cover credit 
risk from delivery of a good or service. 

Debt  collection,  factoring  and  credit  insurance  organisations  will 
benefit  from  the  different  instruments  set  out  under  the  base-line 
option. In particular, the implementation of Directive 2006/123/EC on 
services in the internal market will allow them to explore new markets. 
The  promotion  of  such  commercial  activities  by  a  European  initiative 
might  be  inappropriate  and  could  have  a  distorting  effect  on 
competition in that field.  

Thus,  this  option  does  not  meet  the  proportionality  requirement  and 
was discarded. 

Currently,  Member  States  vary  in  the way  they  consider  late  payment 
as a cost to businesses in terms of reduced cash flow and the calculation 
of their tax liabilities. If a company does charge late payment interest to 
its  debtors,  this  is  often  considered  business  income,  sometimes  from 
the  moment  when  it  is  actually  invoiced;  this  includes  subjecting  the 
interest charged to Value Added Tax (VAT) from the moment when it 
is  charged,  even  though  no  funds  have  actually  been  received.  As  a 
result,  the  value  of  monies  received  from  any  interest  that  might 

Exempt income in 
the form of late 
payment interest 
from VAT 

EN 

88 

   EN 

 
eventually be recovered will be reduced by tax payments. This measure 
would require harmonisation of VAT legislation to exempt interest for 
late payment from VAT in all Member States.  

is  estimated 

that  SMEs  and 

It 
large  companies  would  save 
approximately  €37  million  and  €40  million  respectively if  Member 
States  did  not  charge  VAT  on  late  payment  interest.  These  amounts 
would be lost revenue to Member State governments.  

This option only focuses on the creditor and does not have any effect in 
encouraging late payers to pay on time. Nevertheless, the risk of fraud 
would  be  very  considerable.  This  option  might  create  a  VAT-
loophole,  whereby  companies  would  designate  other  forms  of  income 
and  payments  as  “late  payment  interest”  purely  to  avoid  paying  VAT 
on  them.  Therefore,  this  option  does  not  meet  the  proportionality 
requirement and was discarded. 

An  escrow  facility  involves  a  deposit  of  funds,  a  deed  or  other 
instrument to a third, trustworthy party acting as an intermediary in the 
transaction. The intermediary receives and holds payment and notifies 
the seller or provider to deliver the products or render the service. Once 
the  intermediary  receives  the  invoice  from  the  creditor  and  the 
acceptance from the debtor, the intermediary forwards the payment to 
the creditor.  

Promoting the use of 
Escrow Facilities 
(non-legislative 
option) 

Escrow  facilities  avoid  the  problems  of  late  payment  since  funds  are 
deposited  by  a  debtor  (who  can  obviously  pay  for  the  goods)  with  a 
third party and the creditor is assured that their customer will be able to 
pay on time, as soon as the goods have been delivered (and approved). 
It protects the debtor from having to accept faulty goods, as no money 
is transferred until the debtor is satisfied with the goods. It also protects 
the  creditor  in  that  cash  flow  problems  stemming  from  late  payments 
are avoided. The advantage of an escrow facility for SMEs with credit 
management  problems  would  be  to  guarantee  funds  on  delivery  of 
goods/services  and  to  reduce  the  amount  of  financial  management  for 
creditors  (as  these  are  managed  by  the  escrow  facility).  It  is  not  an 
appropriate system, however, for companies that rely on trade-credit to 
do  business.  Currently,  escrow  facilities  are  rarely  used  in  B2B 
transactions  by  SMEs  within  Europe,  but  are  becoming  more 
commonly  used 
for  new 
technologies,  such  as  in  software  source  code  licensing,  databases, 
for  key-escrow 
industrial  designs,  and  government 
encryption.  Larger  enterprises  occasionally  use  escrow  facilities  for 
transactions where guarantees for payments on delivery of services are 
required or for large, high-risk overseas contracts where the reliability 
of  the  buyer  or  seller  is  highly  uncertain  or  unknown.  In  certain 
Member  States,  escrow  facilities  are  used  for  property  exchange 
transactions.  There  is  currently  little  evidence  of  intra-EU  trading 
between SMEs utilising escrow facilities. 

in  consumer-based 

transactions  and 

initiatives 

Escrow facilities are already available in almost all Member States but 
are  currently  not  widely  used,  particularly  by  SMEs.  The  latter 
indicated  in  consultation  that  escrow  facilities  are  considered  too 
complicated, the cost is too high and there is no legal protection of 
the funds whilst with the third party, so if the escrow company were to 

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declare  bankruptcy,  then  the  funds  would  be  lost.  Moreover,  SMEs 
which  rely  on  trade-credit  transactions  and  with  fewer  funds  to 
commit to escrow-type arrangements may end up not being able to 
compete  with  larger  companies  which  are  more  likely  to  be  able  to 
pay  on  delivery  (i.e.  large  companies  could  benefit  more  than  smaller 
SMEs and public services). Similarly, large retailers may prefer not to 
use escrow as they would lose trade-credit from their extended payment 
periods, and may not be able to base orders on sales. Suppliers would 
benefit from escrow as their risk would be reduced, but they may lose 
customers if they insist on escrow facilities which favour them, rather 
than  the  debtors.  In  addition,  some  interested  parties  cited  the  lack  of 
comprehensive  credit  risk  reports  as  another  obstacle  to  increased 
uptake: if a potential customer has a low credit risk, paying for escrow 
services would be an unnecessary cost.  

For  these  reasons,  this  option  did  not  meet  the  proportionality 
requirement and was discarded. 

The  timely  payment  of  invoices  could  be  guaranteed  by  a  security 
given by the debtor. A security interest on goods entitles the creditor to 
satisfy his outstanding claim from the charged goods to the exclusion of 
other  creditors  of  the  borrower.  Hence  a  security  interest  gives  the 
secured  creditor  a  right  of  preferential  satisfaction  from  the  goods 
charged  with 
indirect 
techniques are usually employed. In some Member States, the rules on 
sales provide the seller with a statutory right of preferred satisfaction. 

interest.  Nowadays,  various 

the  security 

Promoting the use of 
securities (non-
legislative option) 

Securities  for  commercial  transactions  exist  already  in  all  Member 
States.  In  most  Member  States,  the  seller  must  make  his  own 
arrangements. Since the transfer of ownership in the goods is subject to 
the  agreement  of  the  parties,  the  seller  may  retain  his  ownership  in 
them until he has received the full purchase price, as laid down in the 
Directive. If the seller himself is using credit to finance his credit sales, 
the  lender  can  usually  be  secured  by  transferring  to  him  the  seller’s 
retained  ownership.  Under  modern  economic  conditions  it  is  rarely 
feasible  to  deprive  the  debtor  of  charged  goods.  Frequently  the  goods 
are  not  even  in  the  debtor’s  possession,  especially  in  the  case  of 
commercial transactions. In these instances the debtor must be allowed 
to  dispose  of  the  goods  while  the  security  interest  is  maintained.  A 
number of legal systems, however, do not yet recognize the legitimate 
interests of both parties in this situation. They prohibit any disposition 
by the debtor and may not acknowledge a security interest in goods that 
remain in his possession for the purposes of resale.  

The  rules  to  be  followed  in  enforcing  a  security  interest  differ 
considerably from Member State to Member State and even within 
a Member State according to the type of security interest involved. 
Very  often  the  creditor  in  a  commercial  transaction  must  sell  the 
charged  goods  by  public  sale;  occasionally  he  is  permitted  to  acquire 
the  charged  goods  himself.  The  rules  on  security  interests  are  still 
strongly national in character. National laws differ from one another in 
their  priority  rules,  either  between  competing  charges  or  between 
voluntary  and  legal  charges,  and  between  categories  of  creditors. 
Conflicts may arise in the case of cross-border secured transactions in 
terms  of  recognition,  efficacy  and  enforcement  which  may  lead  to  an 

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increased risk and higher costs for creditors. Moreover, a cross-border 
secured transaction may involve either contractual or proprietary issues 
so  that  different  national  laws  could  apply  to  different  aspects  of  the 
same  case.  The  profitability  of  such  transactions  depends  not  only  on 
the  risk  of  the  transaction  per  se  but  also  on  factors  such  as  language 
barriers, national legal formalities, taxes, enforcement and priority rules 
that may differ from Member State to Member State and involve extra 
risks in certain cases. From the debtor’s point of view, a transaction that 
would be cheaper in absolute terms if it were concluded with a creditor 
in another Member State may become more expensive because of these 
factors (see Di Luigi C., “Divergences of Security and Property Law in 
the  European  Union:  The  Need  for  Action”,  J.B.L.  6,  2008,  pp.  526-
549;  Drobnig  U.,  Snijders  H.J.,  Zippro  E.-J,  Divergences  of  Property 
Law: An Obstacle To The Internal Market?, European Law Publishers, 
2006).  Finally,  securities  always  involve  additional  cost.  For  all  these 
reasons, SMEs relying on trade-credit transactions may end up not 
being able to compete with larger companies which are more likely 
to be able to pay on delivery (i.e. large companies could benefit more 
than smaller SMEs and public services).  

These  factors  lead  to  the  conclusion  that  the  promotion  of  such 
subsidiarity 
securities  did  not  meet 
requirements.  

the  proportionality  and 

One  of  the  most  frequently  used  securities  in  international  sales 
transactions is where the seller insists on payment by letter of credit. A 
letter  of  credit  is  essentially  an  authorization  made  by  a  buyer  to  his 
agent (usually a bank) to make payment to a seller. The letter of credit 
is often used when there is a substantial time lag between the dispatch 
of goods by a seller  and their receipt by the buyer. The seller, having 
sent  the  goods  off,  has  fulfilled  his  part  of  the  contract  and  seeks 
payment. The buyer, not having received the goods and being unable to 
inspect them, will be reluctant to pay. To overcome this difficulty, the 
buyer and seller arrange to have intermediaries operating in each of the 
two countries involved make settlement. The buyer instructs his bank to 
issue  a  letter  of  credit  authorizing  payment  to  be  made  to  the  seller 
when  the  latter’s  part  of  the  contract  has  been  fulfilled  (usually  when 
the  seller  has  dispatched  the  correct  quantity  of  suitable  goods).  The 
buyer’s  bank  (the  “issuing”  bank)  ascertains  whether  or  not  this  has 
been  done  by  obtaining  the  cooperation  of  a  bank  in  the  seller’s 
country. This bank (the “corresponding” bank), having inspected all the 
relevant documents of title and bills of lading to ensure that the seller 
has  performed  the  contract,  makes  payment  to  the  seller,  often  by 
means  of  a  bill  of  exchange  or  other  credit  device.  The  document  of 
title,  bills  of  lading,  and  so  forth  are  then  mailed  to  the  buyer.  The 
buyer  then  reimburses  his  bank,  which  in  turn  reimburses  the 
corresponding  bank  for  making  payment  to  the  seller.  In  1933  the 
International  Chamber  of  Commerce  in  Paris  published  the  Uniform 
Customs  and  Practice  for  Documentary  Credits,  which  was  revised 
several  times.  The  latest  revision  was  approved  by  the  Banking 
Commission  of  the  ICC  at  its  meeting  in  Paris  on  25  October  2006. 
This latest version, called the UCP600, formally commenced on 1 July 
2007  (see  http://www.iccwbo.org/).  It  has  been  adopted  by  banks  and 
by banking associations in almost all countries of the world. Therefore, 

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Developing and 
Promoting Credit 
and Financial 
Management 
Programmes (non-
legislative option) 

there is no further need to promote letters of credit. 

Consequently, this option did not meet the proportionality requirement 
and was discarded. 

SMEs  currently  with  poor  practices  could  benefit  from  an  improved 
ability to manage cash flows and to manage finance requirements more 
generally.  This  should  improve  their  profitability  and  hence  increase 
the  potential for  growth.  Training  and  support  may  also  make  it  more 
likely  that  SMEs  are  able  to  apply  the  principles  of  the  late  payment 
directive. For example, three quarters of the 1,476 businesses surveyed 
by  www.payontime.co.uk  admitted  that  they  were  unable  to  calculate 
the  interest  due  to  them  from  late  payments.  This  means  that  many 
SMEs are not benefiting from the legislation designed to protect them. 

In order to help SMEs with limited resources and staff to spend time on 
administrative and legal issues, programmes could be developed aimed 
at  enhancing  SME  capabilities  in  evaluating  clients  and  in  account 
receivables management. Such programmes could provide training and 
advice on issues and systems for: 
-  accountancy  and  financial  management  to  improve  individuals 
abilities to prepare and monitor accounting information, with including 
a discussion on the IT tools and systems available; 
- how to develop a credit management strategy, what its function is and 
who should be responsible; 
-  setting  up  payment  collection  processes  and  ensuring  that  they 
provide  timely  information  on  late  payments,  performance  against 
targets, etc. (including information on the available IT tools); 
- negotiating contracts, agreeing payment terms, addressing retention of 
title issues, and explaining payment procedures to suppliers; 
- how to calculate late payment interest and to apply other provisions of 
the Directive, including a discussion on intra-EU trade;  
-  the  advantages  and  disadvantages  of  different  financing  alternatives, 
including the use of bank loans and other service such as factoring; 
-  how  to  undertake  credit  checks  and  to  monitor  customer  payment 
performance; and 
-  how  to  manage  debt  recovery,  including  the  development  of 
collection  strategies,  details  of  the  tools  available,  taking  legal  action, 
garnishment of accounts, etc.  

The  services  currently  being  offered  by  representative  organisations 
and  credit  and  service  providers  vary  considerably  across  countries, 
with  some  providing  free  or  affordable  and  readily  accessible  advice 
and  others  giving  no  business  support  to  members.  However,  it  is 
understood that many of the ‘free services’ have hidden costs, such as 
charges  for  credit  worthiness  checks,  sending  of  invoices  and 
calculating interest on a late payment; or advice may involve a referral 
to professional consultants/advisors who charge for their services. It is 
therefore  difficult  to  determine  the  likely  costs  to  SMEs  of  increasing 
access to business management support. The costs will depend on what 
form the support takes. For example, schemes might include free guides 
on  credit  management,  a  website  with  credit  management  and  debt 
recovery  information  or  a  national  seminar  programme  on  credit 
management.  

At  one  end  of  the  spectrum,  there  may  be  value  in  expanding 

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programmes  such  as  that  being  operated  by  the  EU/EBRD  to  all  EU 
MS where there appear to be significant late payment problems due to 
inadequate  financing  being  made  available  by  financial  institutions. 
Increased technical assistance to banks to increase the rate of lending to 
SMEs  could  help  break  the  cycle  of  companies  relying  on  ‘trade 
credit’;  in  addition,  the  increase  in  skills  within  financial  institutions 
may  transfer  through  to  an  increased  skill  base  within  their  SME 
clients. 

More  direct  programmes  could  expand  on  those  already  in  use.  For 
example,  in  Estonia,  electronic  banking  systems  are  well  established 
and  many  banks  provide  options  for  “Economic  Resource  Planning”, 
such  as  management  of  cash  flow  and  invoices.  The  IT  solutions 
themselves  are  free,  but  customers  pay  to  use  the  services.  The  price 
depends on the volume of use, but is about 3EKK (about €0.20) to send 
out an e-invoice – making a payment is free. Compare this with the cost 
of  out-sourcing  credit  and  financing  to  a  large  corporation  such  as 
PriceWaterhouseCoopers,  which  may  come  as  a  fixed  price  or  be  a 
proportion  of  a  company’s  total  turnover  for  a  year.  Other  services 
come  in  the  form  of  guides  for  credit  management  such  as  Croner’s 
Guide to Credit Management at around £700 (€910). Free programmes 
aimed  at  SMEs  can  also  be  found  on  the  internet,  such  as  the  SME 
Toolkit  which  offers  software,  business  forms,  training,  etc  to  SMEs, 
covering  topics  such  as  accounting  and  finance  (including  credit  and 
collections),  financial  management,  business  planning,  etc.  The 
divergence between what is currently offered and what could be offered 
is thus enormous.  

In 
the  UK,  account  receivables  management  and  commercial 
development  are  seen  more  as  an  issue  of  awareness,  education  and 
training, as opposed to a lack of available technology. For example, the 
Institute  of  Credit  Management 
representative 
organisations  (e.g.  FPB),  regional  business  development  authorities, 
and  banks,  including  other  lending  institutions  and  the  centralised 
business support hub - Business Link – website, are known to provide 
or promote training and education in these areas.  

(ICM),  SME 

the  EU  (including  under 

Information on the annual funding received by Business Link provides 
an  indication  of  the  potential  magnitude  of  the  costs  that  could  be 
involved in MS organisations providing free business advice to SMEs. 
The  budget  for  the  UK  Business  Link  network  in  2003  was  around 
£300  million  (roughly  €390  million),  with  approximately  £27million 
the  Single 
(€35  million)  funded  by 
Regeneration  budget).  This  budget  covered  all  services  provided 
(website, local centres, advice and training, etc. covering issues ranging 
from  regulation  to  export  to  innovation),  not  just  those  related  to 
financial  management.  The  services  provided  by  Business  Link  are 
free, but it is clear that many issues involve referral to consultants who 
may then charge the user. This figure of €390 million compares to €204 
billion in late payments to UK SMEs and translates into an investment 
by the funding organisations of around €245 (£196) per SME company 
in terms of providing free advisory services.  

It  is  impossible  to  identify  any  basis  for  calculating  the  costs  of 
developing and promoting credit and finance management programmes 
for  EU-wide  roll  out.  Therefore,  the  Business  Link  funding  figure  is 

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used here to provide an indication of possible levels of expenditure.  

If it is assumed that only 10% of this actual expenditure figure related 
to  credit  and  financial  management  services,  and  that  this  level  of 
investment per SME company (i.e. €25 per company) was made in the 
10 countries with the worst late payment problems, this would translate 
into  costs  of  around  €0.26  billion;  or  if  such  a  programme  of  support 
was  rolled  out  across  all  27  MS,  it  would  cost  around  €0.48  billion, 
roughly 0.04% of the total value of late payments to SMEs across the 
EU. 

This figure is high compared to the total EU budget for the Enterprise 
Europe  Network  –aimed  at  helping  SMEs  develop  their  innovation 
potential - which is €320 million over 7 years. It is therefore likely that 
the  funding  of  any  support  programme  in  relation  to  late  payments 
would be at a lower level than this, or at least no higher. 

To  put  these  figures  into  perspective,  the  on-line  survey  found  that 
smaller  companies  are  willing  to  pay  for  improved  credit  and  finance 
management  systems  (24%  for  SMEs  as  opposed  to  9%  for  larger 
companies). However, an equal number of SMEs is not willing to pay 
(22%).  The  results  of  the  survey  suggest  that  those  SMEs  who  would 
be willing to pay would generally pay up to <€2,500, but that interest 
wanes  as  the  price  increases  beyond  this.  In  contrast,  10%  of  larger 
companies would be willing to pay <€5,000 for these services.  

The  weakness  of  this  option  is  that  it  addresses  the  problem  of  late 
payments indirectly. The willingness of creditor companies to actually 
charge  late  payment  interest  may  not  necessarily  increase.  It  also 
requires  voluntary  up-take  by  SMEs  and  it  would  be  difficult  to 
monitor  its  impact.  Furthermore,  many  Member  States  already  have 
programmes in place so that care would need to be taken to ensure that 
advice is consistent across such programmes. Programmes involving a 
charge or involving referral to external and paid advisory services may 
deter SMEs . 

Therefore, this option did not meet the proportionality requirement and 
was discarded. 

Table concerning the discarded option “A new programme to enhance SME capabilities” 
Protection against payment risks: does your company take deliberate steps in order to protect 
itself from bad debt?  

Overall 
Germany 
Belgium 
France 
Italy 
The Netherlands 
U.K. 

Yes 
65% 
72% 
66% 
74% 
53% 
65% 
60% 

No 
35% 
28% 
34% 
26% 
47% 
35% 
40% 

Source : Altradius Payment Practices Barometer – Winter 2007 

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8.6. 

Annex  6:  overview  of  the  jurisprudence  of  the  Court  of  Justice  about  the 
Directive  

Article of the Directive 

Case references 

Analysis of the Court of Justice 

Article 3(1)(e):  
The  creditor  is  entitled  to 
reasonable 
claim 
compensation 
the 
from 
relevant 
for  all 
debtor 
recovery  costs 
incurred 
through  the  latter’s  late 
payment.  

Judgment of 10 
March 2005 

QDQ Media SA v 
Alejandro Omedas 
Lechan 

Case C-235/03 

Article 3(1)(c)(ii): 
The  creditor  is  entitled  to 
interest for late payment to 
the  extent  that  he  has  not 
received  the  amount  due 
on time, unless the debtor 
is  not  responsible  for  the 
delay.  

Judgment of the 
Court of 3 April 
2008 

01051 Telecom 
GmbH v Deutsche 
Telekom AG  

Case C-306/06. 

Judgment of the 
Court of 11 
December 2008  

Commission of the 
European 
Communities 
v 
Kingdom of Spain 

Case C-380/06 

which 

Article 3(2): 
For  certain  categories  of 
contracts  to  be  defined  by 
law,  Member 
national 
States  may  fix  the  period 
interest 
after 
becomes  payable 
to  a 
maximum  of  60  days 
provided  that  they  either 
restrain  the  parties  to  the 
contract  from  exceeding 
this  period  or 
fix  a 
rate 
mandatory 
that  substantially  exceeds 
the statutory rate.  

interest 

In  a  case  which  relates  to  a  dispute  between  individuals, 
where  it  is  not  possible  on  the  basis  of  national  law  to 
include, in the calculation of the costs which an individual 
who  owes  a  business  debt  might  be  ordered  to  pay,  the 
expenses  arising  from  representation  by  an  abogado  or 
procurador  of  the  creditor  in  judicial  proceedings  for  the 
recovery  of  that  debt,  Directive  2000/35  cannot  of  itself 
serve as the basis for the inclusion of such expenses, since 
a  directive  cannot  of  itself  impose  obligations  on  an 
individual and cannot be relied on against an individual. 
It is explicit in the wording of that provision that a debtor’s 
payment is regarded as late, for the purposes of entitlement 
to  interest  for  late  payment,  where  the  creditor  does  not 
have the sum owed at his disposal on the due date. In the 
case of payment by bank transfer, only the crediting of the 
amount  due  to  the  creditor’s  account  will  enable  him  to 
have that sum at his disposal. 

Article  3(1)(c)(ii)  is  to  be  interpreted  as  meaning  that  it 
requires,  in  order  that  a  payment  by  bank  transfer  may 
avoid  or  put  an  end  to  the  application  of  interest  for  late 
payment, that the sum due be credited to the account of the 
creditor within the period for payment. 

As  is  clear  from  Article  3(1)(a)  of  Directive  2000/35,  the 
parties are generally free to fix in their contract the date or 
the period for payment. It is therefore only in the absence 
of a relevant contractual clause that the statutory period of 
30 days prescribed by Article 3(1)(b) of that directive must 
apply. 

Article 3(2) of Directive 2000/35 then allows the Member 
States  to  extend  that  30-day  period,  but  makes  that 
possibility subject to a twofold condition. First, the option 
must be limited to certain categories of contracts. Second, 
with regard to the duration of the derogating period, it may 
be  extended  to  a  maximum  of  60  days,  if  the  parties  are 
prohibited  from  derogating  from  this  by  contract  or  on 
condition  that  a  mandatory  interest  rate  that  substantially 
exceeds the statutory rate is applicable. 

Article  3(2)  of  Directive  2000/35  governs  exclusively  the 
possibility afforded to Member States of fixing, in certain 
limited  cases,  a  statutory  period  exceeding  the  30-day 
period applicable in the absence of a contractual clause on 
the  date  or  the  period  of  payment.  In  other  words,  only 
where the parties are silent on the matter does the situation 
fall within the scope of Article 3(2) of that directive. 

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Article 4(1): 
The  seller  retains  title  to 
goods  until  they  are  fully 
paid  for  if  a  retention  of 
title 
clause  has  been 
expressly  agreed  between 
the  buyer  and  the  seller 
before  the  delivery  of  the 
goods. 

Judgment of the 
Court of 26 October 
2006  

Commission of the 
European 
Communities v 
Italian Republic  

Case C-302/05. 

Judgment of the 
Court of 11 
September 2008  

Caffaro Srl v 
Azienda Unità 
Sanitaria Locale 
RM/C 

Case C-265/07. 

States 

Article 5(1):  
Member 
shall 
ensure that an enforceable 
title  can  be  obtained, 
irrespective  of  the  amount 
of 
the  debt,  normally 
within 90 calendar days of 
the 
the 
creditor’s 
or 
application  at  the  court  or 
other  competent  authority, 
provided  that  the  debt  or 
aspects  of  the  procedure 
are not disputed.  

of 
action 

lodging 

In  view  of  the  wording  of  Article  4(1)  of  Directive 
2000/35  and  the  purpose  of  that  directive,  it  cannot  be 
inferred from that provision that it is intended to affect any 
rules other than those which expressly provide, firstly, that 
it is possible for the seller and the buyer expressly to agree 
a  retention  of  title  clause  before  the  goods  are  delivered 
and, secondly, that it is possible for the seller to retain title 
to the goods until they have been paid for in full. 

the  national  rules  which  concern 

Accordingly, 
the 
enforceability  of  retention  of  title  clauses  against  third 
parties, whose rights are not affected by Directive 2000/35, 
are  still  governed  exclusively  by  the  national  legal  orders 
of the Member States.  
As  regards  the  recovery  procedures  for  unchallenged 
claims,  the  directive  harmonises  only  the  period  within 
which  an  enforceable  title  can  be  obtained,  but  does  not 
govern forced execution procedures, which remain subject 
to the national law of the Member States. 

Directive 2000/35/EC is to be interpreted as not precluding 
a  national  provision  […]  pursuant  to  which  a  creditor  in 
possession  of  an  enforceable  title  in  respect  of  an 
unchallenged  claim  against  a  public  authority  as 
remuneration for a commercial transaction cannot proceed 
to  forced  execution  against  the  public  authority  before  a 
period  of  120  days  has  elapsed  since  service  of  the 
enforceable title on the authority. 

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8.7. 

Annex  7:  Transposition  of  Article  3(5)  (organizations  representing  SMEs)  and 
Article 6(3)(c) (threshold of €5) 

Member State 

Belgium 
Bulgaria 
Czech Republic 
Denmark 
Germany 
Estonia 
Ireland 
Greece 
Spain 
France 

Italy 
Cyprus 
Latvia 
Lithuania 
Luxembourg 
Hungary 
Malta 
Netherlands 
Austria 
Poland 

Portugal 
Romania 
Slovenia 
Slovakia 
Finland 
Sweden 
United Kingdom 

Threshold 

no 
no 
no 
no 
no 
no 
yes 
no 
no 
no 
(but 
usually 
appears in 
contracts) 
yes 
no 
no 
yes 
no 
no 
yes 
no 
no 
no 

no 
no 
no 
no 
no 
no 
no 

Representing organizations 

Possibility  exists  under  national  law,  but  the  role  of 
representative organizations is strictly limited to asking the 
court  to  grant  an  injunction  against  contractual  terms 
drawn  up  for  general  use  on  the  ground  they  are  grossly 
unfair.  

Professional  organizations  may  introduce  an  action 
before  the  civil  or  commercial  courts  on  the  basis  of 
facts  which  cause  direct  or  indirect  detriment  to  the 
collective  interests  of  the  profession  or  sector  which 
they represent, or to fair competition. 

Possibility  exists  under  national  law,  but  the  role  of 
representative organizations is strictly limited to asking the 
court  to  grant  an  injunction  against  contractual  terms 
drawn  up  for  general  use  on  the  ground  they  are  grossly 
unfair. 

The  payment  of  interest  referred  to  in  Articles  5  to  7 
may  be  claimed  in  the  name  and  on  behalf  of  the 
creditor  referred  to  in  Article  3  by  the  national  or 
regional  organisation  acting  on  his  request,  provided 
that the Statute of the organisation concerned provides 
for the protection of interests of the entities such as the 
creditor. 

Possibility  exists  under  national  law,  but  the  role  of 
representing  organizations  is  strictly  limited  to  asking  the 
court  to  grant  an  injunction  against  contractual  terms 
drawn  up  for  general  use  on  the  ground  they  are  grossly 
unfair. 

EN 

97 

   EN 

 
 
 
 
 
 
 
8.8. 

Annex 8: the SME test 

a) Consultation with SMEs representatives 

•  The  options  were  discussed  at  the  regular 
meeting  between  the  SME  Envoy  and  SME 
organisations  on  22  October  2008.  The 
late 
discussion  focused  on 
payment,  the  role  of  business  organisations  in 
informing SMEs, the need to clarify the rules so 
that  businesses  understand  them,  and  on  the 
possibility to extend the coverage of the directive 
to  business  –  customer  relations  (currently  only 
business to business transactions).  

the  causes  of 

•  The  European  Business  Test  Panel  (EBTP)  was 
consulted.  See  Annex  2.  Stakeholders were  also 
consulted  through  the  I.P.M.  consultation,  the 
results of which are shown in Annex 1. 

•  The 

for 

the 

consultation  period 

I.P.M. 
consultation  was  extended  from  8  to  almost  12 
weeks  in  order  to  allow  SME  organisation  to 
consult their members, considering also that they 
often  have  to  translate  and  explain  legislative 
proposals for their members. 

this  stage, 

b)  Preliminary  assessment  of  businesses  likely  to 
it  should  be 
be  affected:  during 
established  whether  SMEs  are  among  the  affected 
population. If the preliminary assessment leads to the 
conclusion  that  SMEs  are  amongst  the  affected 
parties,  the  initial  presumption  is  that  costs  fall 
disproportionately on small businesses. 

c) Measurement of the impact on SMEs 

d)  Assess  alternative  options  and  mitigating 
measures 

See sections 2.2.1, 2.3.1, 2.3.3 and Tables 3.1 and 3.2 
in Annex 3. 

The distribution of the potential costs and benefits of 
the proposals (policy options) over the businesses size, 
differentiating between SMEs and large enterprises is 
analysed  in  the  light  of  the  SME's  competitiveness 
(section 3.2) in sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 
5.9, 5.10 and in chapter 6. Cost and impacts identified 
large 
for  SMEs  were  compared  with 
enterprises.  

those  of 

At  the  end  of  the  impact  assessment,  there  was  no 
indication  that  the  selected  options  might  result  in  a 
disproportionate  burden  for  SMEs.  Consequently, 
there is no element showing the need for SME specific 
measures  in  order  to  ensure  compliance  with  the 
proportionality principle.  

EN 

98 

   EN