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) - Summary of the impact assessment {COM(2009) 126 final} {SEC(2009) 315}
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) 316 

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) 

SUMMARY OF THE IMPACT ASSESSMENT 

{COM(2009) 126 final} 
{SEC(2009) 315} 

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Agenda  planning  or  WP  reference:  2009/ENTR/006.  This  document  commits  only 
the Commission's services involved in the preparation of the impact assessment and 
does not prejudge the final form of any decision to be taken by the Commission. 

The  Impact  Assessment  Board  delivered  its  opinion  about  the  draft  impact 
assessment  on  17  December  2008  [D(2008)10479].  All  recommendations  made  by 
the  Board  were  taken  into  account  and  the  impact  assessment  was  amended 
accordingly.  

1. 

PROBLEM DEFINITION 

Directive  2000/35/EC  was  adopted  in  order  to  combat  late  payment  in  commercial 
transactions.  According  to  the  Directive,  a  late  payment  interest  may  be  charged 
when the payment is not made within the contractual or legal deadline. The directive 
provides  for  a  statutory  rate  but  allows  the  parties  to  agree  otherwise.  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 if the payment period is not fixed.  

Despite  the  Directive,  late  payments  in  commercial  transactions  are  still  a 
widespread  practice  in  the  EU.  They  do  not  only  occur  frequently  in  transactions 
between  businesses:  surveys  also  show  that,  in  general,  the  payment  periods  in  the 
public sector are longer than the payment periods in private sector contracts.  

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

(1) 

(2) 

(3) 

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. 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.  

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.  Also,  firms  suffer  from  a 
reduced ability to generate cash from their operations, and banks may reduce 
credit  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 find funds.  

Access  to  finance  and  budgetary  constraints:  The  availability  of  credit, 
monetary  policy,  the  flow  and  nature  of  credit  information,  the  liquidity 
position of the firm and the availability of financial resources from banks may 
also affect late payment, particularly for businesses for which bank credit is a 

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(4) 

(5) 

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  payments  to 
creditors  are  also  an  easy,  but  unjustified,  way  to  overcome  budgetary 
constraints by postponing payments to the next budgetary period. 

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. 

The  absence  of  effective  and  efficient 
remedies:  notwithstanding 
Directive 2000/35/EC,  many  businesses,  and  in  particular  SMEs,  do  not 
charge interest when entitled to do so. 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.  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.  All  these  reasons  make  that  the  risk  of 
negative  consequences  in  case  of  late  payment  on  the  side  of  the  debtors  is 
too  low  to  achieve  a  tangible  improvement  in  payment  behaviour.  This  is 
particularly  deplorable  in  case  of  public  administrations,  which  do  not  face 
the  same  financing  constraints  as  businesses.  In  addition,  several  key 
provisions  of  the  Directive  are  unclear  or  difficult  to  implement  in  practice. 
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.  

Late payments in commercial transactions have important effects: 

•  Late payment represents a significant cost to creditor enterprises. In general, late 
payment strains cash flow, adds financial costs, squeezes investment opportunities 
and  fuels  uncertainty  for  many  creditor  businesses  and  in  particular,  SMEs, 
especially in times of limited and expensive access to finance. The result is that 
their competitiveness and solvency are often compromised.  

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

•  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. 
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. Very long payment periods in public procurement 

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contracts  and  late  payment  by  public  authorities  also  discourage  economic 
operators  to  participate  in  public  procurement  procedures.  This  discouragement 
reduces the capacity of public authorities to get best value for tax payers' money. 

2. 

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 Jobs1; 

•  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 Act2; 

•  Facilitate the smooth functioning and the completion of the internal market via 

the elimination of related barriers to cross-border commercial transactions.  

The initiative provides also an important impetus to overcome the current economic 
crisis by contributing to the implementation of the European Economic Recovery 
Plan3 and promoting businesses’ cash flow in order to reinforce the competitiveness 
of European enterprises in the long term. 

Concretely, this translates into the following twin operational objectives: 

(1) 

(2) 

Confront  debtors  with  measures  that  successfully  discourage  them  from 
paying late; and  

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

3. 

POLICY OPTIONS 

Besides the baseline option, the following options were examined: 

–  Option  2a  (non-legislative):  The  organisation  of  awareness  raising  activities 

targeted at businesses; 

–  Option  2b  (non-legislative):  The  organisation  of  awareness-raising  activities 

targeted at organisations representing SMEs; 

1 

2 

3 

Commission Communication: Working together for growth and jobs. A new start of the Lisbon strategy 
- COM(2005) 24. 
According  to  the  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,  the  facilitation  of  SMEs’ 
access  to  finance  and  the  development  of  a  legal  and  business  environment  supportive  to  timely 
payments  in  commercial  transactions  is  one  of  the  10  principles  to  guide  the  conception  and 
implementation of SME policies both at EU and Member State level. 
COM(2008) 800, 26.11.2008. 

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

–  Option 3a (legislative): Full harmonisation of payment periods; 

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

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

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

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

–  Option 3f (legislative): Strengthen the role of representative organisations. 

Several  options,  such  as  the  repeal  of  Directive  2000/35/EC,  the  creation  of  a 
European Fund aimed at providing finance to SMEs at no cost and based on accounts 
receivable were discarded at an early phase of the screening of the options. 

4. 

ANALYSIS OF IMPACTS 

It should be noted that, for some important aspects of the three first problem causes 
set  out  in  section  1,  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.  

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 
transactions. 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.  For  instance,  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. For this reason, while it is possible to qualitatively estimate the impact of the 
different  options  it  is  difficult  to  make  a  reliable  forecast  on  the  overall  economic 
effect of the proposal and hence impossible to assess quantitatively the direct social 
impacts.  

The policy options are assessed in the light of the baseline option in  terms  of their 
effectiveness, efficiency and consistency: 

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General comparison of options 

Option 

Effectiveness 

Efficiency 

Consistency 

2b 

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

3a/1 

3a/2 

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

to 

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. 

No: 
high 
very 
administrative  costs  for 
businesses. 

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

compete 

No:  loss  of  contractual 
removing 
freedom  by 
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 
over 
company 
suppliers 
trade-offs  across 
Yes: 
other  domains  could  not 
be identified. 

small 

still 

No: 
compliance 
adjustment costs. 

Considerable 
and 

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.  

Doubtful: 
possible 
preventive 
on 
effect 
but  many 
creditors 
practical  drawbacks  for 
its implementation 
Yes: likely to lead to less 
by 
payments 
late 
shortening 
contractual 
payment periods.  

standard 

Yes:  fear  of  damaging 
commercial 
the 
relationship  with 
the 
client should not exist in 
contracts concluded with 
national 
authorities 
which  are  required  to 
follow 
and 
transparent  procedures. 
Moreover,  the  payment 
period  is  normally  not  a 
negotiable 
item  of  a 
contract  awarded  by  a 
authority. 
public 
However,  a  sufficiently 
high  sanction  in  case  of 
late payment needs to be 
foreseen.  

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3b 

the 

Option 
(legislative): 
increasing 
“margin” 
interest rate  

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

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

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

3f 

the 
of 

Option 
(legislative): 
Extending 
role 
representative 
organisations 

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

strengthen 

this  option 
Doubtful: 
the 
could 
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, 
and 
transaction 
compliance  costs  could 
be identified. 

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

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

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

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

Yes.  Costs 
(mainly 
transaction  costs)  are 
redistributive. 
No 
compliance  costs.  The 
budgetary 
are 
justified  in  view  of  the 
on 
damage 
and 
business 
proportional 
to 
compliance. 

inflicted 

costs 

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. 

in 

in 

for 

rate 

States 

current 

Doubtful:  stakeholders 
seem to be satisfied with 
the 
“margin” 
interest  rate.  Businesses 
are  already  entitled  to 
a 
higher 
negotiate 
interest 
the 
rate 
contract  or  to  include  a 
higher 
their 
commercial  conditions. 
The  current  rules  allow 
Member 
to 
provide 
for  a  higher 
minimum  “margin”  rate 
national 
their 
in 
legislation. 
small 
Yes 
transactions 
if 
accompanied  by  other 
measures 
that  would 
make  it  economical  to 
collect  the  outstanding 
amounts. 
it  would  permit 
Yes: 
businesses to recover the 
transaction 
of 
costs 
claiming 
the  payment 
and  charging  interest  for 
late  payments  so 
that 
only  purely  commercial 
arguments 
would 
prevent  creditors  from 
charging interest.  
strong  deterrent 
Yes: 
effect 
debtors 
on 
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.  It  also 
constitutes 
strong 
incentive  to  creditors  to 
claim  the  payment  and 
the interest. 
Doubtful: 
these 
organisations  may  not 
to 
have 
the 
cope 
administrative 
charges 
and the financial risks of 
litigation 
late 
payment. They may also 
from 
be 
prevented 
bringing 
action 
an 
because  of  a  conflict  of 
example 
for 
interest, 
when 
the  organisation 
has as members both the 

the  resources 
with 

on 

a 

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creditors and the debtor.  

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:  

Ranking the options  

Option 

Effectiveness 

Efficiency 

Consistency 

RECOMMENDED CHOICE 

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

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 

The  only  option  likely  to  impose  significant  administrative  costs  on  business  is 
option  2c.  A  rough  indication  of  these  costs  for  this  options  amounts  to  25,300 
million euro for SMEs and 86.1 million euro for large enterprises. 

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