COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on combating late payment in commercial transactions
Date: 2023-09-12
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: commercial transaction, contract terms, deadline for payment, goods and services, single market, small and medium-sized enterprises

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   EUROPEAN COMMISSION  Strasbourg, 12.9.2023  SWD(2023) 313 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  on combating late payment in commercial transactions {COM(2023) 533 final} - {SEC(2023) 313 final} - {SWD(2023) 312 final} - {SWD(2023) 314 final}  
 
 
Executive Summary Sheet 

Impact assessment for the revision of the Late Payment Directive (Directive 2011/7/EU)  
A. What is the problem and why is it a problem at EU level? 
Each  year  around  18  billion  invoices  are  exchanged  in  the  EU.  That's  more  than  500  every 
second and of those almost 50% are paid late. Late payments affect liquidity and predictability 
of cash flows, in turn increasing working capital needs and compromising a company’s access 
to  external  financing.  As  a  result,  growth  and  competitiveness  are  affected,  productivity  is 
reduced,  and  the  likelihood  of  redundancies  and  bankruptcies  increases.  The  effects  of  late 
payments  are  felt  along  supply  chains,  as  the  payment  delay  is  often  passed  onto  suppliers. 
Small  and  medium-sized  enterprises  (SMEs),  that  rely  on  predictable  streams  of  cash  are 
heavily  affected  by  these  negative  effects.  Late  payments  also  have  damaging  social  effects. 
Some  sectors  are  more  vulnerable  than  others  to  late  payment.  For  example,  the  construction 
sector. The root cause of late payments lies in the imbalance in the bargaining power between a 
small supplier and a big client, since paying late is an attractive form of zero-cost finance for 
the  debtor.  The  drivers  causing  the  problem  include  insufficient  preventive  measures, 
unsuitable deterrents, and insufficient enforcement and redress mechanisms.  

What should be achieved? 
General objectives:  
A.  to strengthen companies' competitiveness and growth by improving the payment discipline 

of public authorities, large businesses, and SMEs; 

B.  to  protect  SMEs  against  the  negative  effects  of  late  payment  by  laying  down  rules  that 

promote fair and timely payment in commercial transactions. 

Specific objectives:  
1)  to prevent late payment from occurring; 
2)  to facilitate timely payments;  
3)  to empower companies and ensure more fairness in payments in commercial transactions. 

What is the value added of action at the EU level (subsidiarity)? 
The EU has been tackling late payment in commercial transactions for the past 30 years. This 
initiative revises existing EU legislation (Directive 2011/7/EU) and therefore can only be done 
at  EU  level.  Some  EU  Member  States  have  adopted  tighter  rules  than  those  set  out  in  the 
Directive.  For  example,  capping  payment  terms  in  business  to  business  (B2B)  transactions 
when the creditor is an SME and setting up enforcement bodies. To avoid an uneven EU single 
market, it is necessary to ensure that the rules are enforced in the same way.  

B. Solutions 
What are the various options to achieve the objectives? Is there a preferred option or not? 
If not, why? 
Policy option 1: to prevent late payment from occurring  
Policy  measures  under  this  option  aim  at  preventing  late  payment  by  ensuring  fair  payment 
terms. Maximum payment terms are set, also for the verification procedure to check compliance 
with the contract requirements. Provisions providing SMEs with training on credit management 
and financial literacy are also included.  
Policy option 2: to facilitate timely payments  
Policy  measures  under  this  option  aim  at  addressing  late  payments  by  strengthening 
enforcement of the rules and ensuring that payment terms are respected. The current Directive’s 
deterrents, namely, the entitlement for late payment interests and the flat fee compensation are 
made  more  effective  by  making  interest  on  late  payments  mandatory  and  increasing  flat  fee 

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compensation.  Enforcement  is  a  key  driver  for  the  problem  of  late  payments.  Therefore,  the 
options  that  have  been  assessed  differ  according  to  the  powers  entrusted  to  a  national 
enforcement body designated by  EU  Member States. The option also  includes synergies  with 
public procurement to protect subcontractors in public work contracts. 
Policy  option  3:  to  strengthen  redress  mechanisms,  ensure  fair  payment  conditions  and 
empower companies 
Policy  measures  under  this  option  promote  fairness  and  the  availability  of  effective  redress 
mechanisms  if  payment  conditions  are  not  met.  EU  Member  States  will  need  to  establish 
mediation  tools  that  are  easily  accessible  to  SMEs  and  address  unfair  contractual  terms  and 
practices through their national law.  
The  preferred  option.  Each  option  has  potential  benefits  but  also  poses  some  risks  when 
implemented alone. The impact assessment concluded that the preferred way forward consists 
of a package of the  most effective and efficient  measures  under the three  policy  options.  The 
impact assessment also concluded that a regulation is the preferred form of the legal act. 

Preferred policy package: 1a+2a+3b 

- Cap payment times at 30 days in B2B transactions. 
- Verification or acceptance procedure capped at 30 days (no derogation). 
- EU Member States facilitate availability of credit management and financial literacy training, 
including digital payment tools for SMEs.  
- Late payment interest is automatic (‘entitlement’ concept eliminated), the ending day for 
accrual of interest is clarified. 
- Flat fee compensation owed for each transaction paid late and increased to EUR 50 to reflect 
inflation. 
- EU Member States to designate bodies responsible for enforcing the law, carrying out 
investigations on their own initiative or through complaints, empowered to issue administrative 
sanctions and publish the name of offenders. Use of digital tools for more effective 
enforcement. 
- In public works contracts, contracting authorities and contracting entities must check that 
payment to the main contractor has been passed onto the direct subcontractors. 
- EU Member States to set up a national system of mediation to solve payment disputes in 
commercial transactions. 
- EU Member States to address the question of unfair contractual terms and practices through 
their national law. 

What are different stakeholders' views? Who supports which option? 
Results  of  the  consultations:  939  replies  to  the  SME  panel,  117  replies  to  the  public 
consultation (PC), 137  responses to  the call for  evidence, several  meetings  with  stakeholders. 
Almost  83%  of  the  SME  panel  and  36.7%  respondents  in  the  PC  support  the  capping  of 
payment  terms,  with  a  preference  for  30  days.  A  limited  number  of  business  associations 
oppose  the  capping,  and/or  call  for  sector  exceptions.  Almost  81%  of  SME  respondents 
confirmed  that  interests  and  compensation  fees  are  never  paid.  84%  of  SME  respondents 
considered  the  setting  up  of  enforcement  bodies  as  useful  or  very  useful.  Almost  60%  of 
respondents to the PC agreed that public authorities should put in place mechanisms to  check 
that main contractors pay their subcontractors on time. Setting up a national mediation system 
received  positive  responses  both  in  the  call  for  evidence  and  the  PC.  The  SME  panel  also 
gathered a comprehensive overview of unfair practices to circumvent the law. 

C. Impacts of the preferred option 

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What are the benefits of the option? 
On  an  aggregate  level  the  impact  will  be  beneficial  for  businesses.  Reduced  payment  times, 
estimated at 35%, will free up cash flow and improve the predictability of payments. Smaller 
market players will be less likely to face unfair payment terms and will have effective means of 
redress  when  faced  with  late  payments.  Hassle  costs  of  chasing  debtors  (estimated  at  340.2 
million  man-hours,  equal  to  EUR 8.74  billion)  will  be  significantly  reduced.  Setting  up 
mediation would allow companies to save EUR 27 million in avoided court cases per year. This 
initiative also increases fairness in business relations.  
Public authorities benefit from mediation systems, both directly, if they wish to settle a dispute 
with a supplier, and indirectly by reducing the burden on the judicial system.  Overall, this leads 
to a reduction in late payments meaning fewer bankruptcies and associated costs to the public 
purse. 
Consumers are not directly affected by this initiative.  

What are the costs of the preferred option (businesses and public authorities)? 
Most costs affecting all businesses are one-off costs. These include updating standard invoices 
to  reflect  new payment terms  and adjusted compensation fees, estimated  at  EUR 243 million. 
Recurring  costs  are  mainly  borne  by  debtors  that  currently  pay  late:  automatic  payment  of 
interest and (increased) compensation, potential administrative fines, and the loss of hassle-free 
credit  when  forced  to  pay  on  time.  These  costs  can  be  completely  avoided  if  debtors  pay  on 
time. 
The  costs  associated  to  the  public  purse  appear  limited  and  proportionate.  Public  authorities 
would face some costs to designate and run the enforcement and mediation bodies. These costs 
are  estimated  at  EUR  70-105  million  per  year  for  the  EU-27  (EUR 60-65  million  for 
enforcement bodies and EUR 10-40 million for mediation services).  

What are the impacts on SMEs and competitiveness?  
Impacts on SMEs:  
The SME filter classifies this initiative as 'highly relevant' The preferred option was supported 
by SMEs in the SME panel and in the public consultation. Whereas all SMEs are expected to 
benefit from the initiative, micro-SMEs, that are more exposed to the problem, stand to benefit 
more. From the creditor-side, late payments prevent companies from growing and forces them 
to waste resources 5-10% of total administrative work on average is spent chasing debtors. This 
is time that SMEs could have used more productively, for example, to get training or seek new 
business opportunities.  
From  the  debtor-side,  the  larger  the  company  is  the  more  likely  it  pays  late.  On  average, 
around 41% of SMEs are expected to benefit from capping payment terms at 30 days. Broader 
effects are expected for microenterprises (50%) while the capping of the verification procedure 
at 30 days could benefit up to 66% of SMEs. Making payments of interest and compensation 
fees  compulsory  will  improve  the  current  situation,  where  81%  of  SMEs  and  93%  for 
microenterprises  currently  never  receive  such  compensation.  Stronger  enforcement  rules  will 
improve  payment  performance.  Measures  supporting  subcontractors  in  public  work  contracts 
will  have  a  positive  impact  on  SMEs  (on  average  80%  of  the  value  of  a  large  construction 
project is subcontracted to SMEs). National mediation systems will lead to monetary benefits 
for  those  businesses  that  currently  rely  on  court  litigation,  and  faster  dispute  resolutions  for 
those businesses that currently avoid going to court to recover unpaid debt. 
Impacts  on  competitiveness:  The  effect  of  the  preferred  option  on  price/cost  and  innovation 
competitiveness  is  expected  to  be  positive.  With  an  increased  aggregate  cash  flow  in  the 
economy,  businesses have more liquidity  to  invest  in  innovation  or to  pass  cost  reductions  to 

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consumers. The redistribution of the liquidity in the economy is fairer because every business is 
paying  for  the  liquidity  they  need  and  use.  Conditions  for  doing  business  would  be  more 
predictable, resulting in a more favourable business environment.  
On  international  competitiveness,  companies  that  import  or  export  are  bound  to  face 
mismatches  in  the  length  of  payment  terms  (between  their  accounts  payable  and  receivable). 
The  assumed  risks  related  to  these  mismatches  are  addressed  under  market  conditions  by 
providers of trade finance (for example, cash-in-advance, letter of credit). In addition, the risk 
that non-EU businesses undercut EU businesses by offering long payment terms in  a non-EU 
market is further limited by the fact that many EU partner countries, such as Canada, the US, 
Türkiye and the UK already have rules on late payments. 

Will there be other significant impacts? 
All policy options will impact on employment, fairness in the business culture and wellbeing of 
entrepreneurs. None of the policy options will have a direct environmental impact. None of the 
policy options will cause significant harm to the environment. 

Proportionality? 
All  policy  options  comply  with  the  principles  of  proportionality  and  subsidiarity.  They  only 
impose  costs  to  businesses  that  are  necessary  to  achieve  the  objectives  and  leave  room  for 
Member States' discretion (for example, designation of enforcement bodies, implementation of 
credit  management  training  and  redress  measures,  identification  of  unfair  payment  practices). 
The impact assessment also identifies discarded options.  

D. Follow up 
The Commission will monitor and evaluate the impacts of the initiative 4 years after the entry 
into force of the new legislation. The European Payment Observatory and reports produced by 
the Member States on their own initiative or by third parties  will also support the monitoring 
process for this initiative. 

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