COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid 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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  EN 

   EUROPEAN COMMISSION  Strasbourg, 12.9.2023  SWD(2023) 312 final  COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid 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) 313 final} - {SWD(2023) 314 final}  
 
 
Subsidiarity Grid 

1.  Can the Union act? What is the legal basis and competence of the Unions’ intended action? 

1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative? 

The overall objective of this legislative proposal is to ensure the smooth functioning of the EU single 
market by combating the unlawful misappropriation of liquidity in the EU market.  
Article 114 of the Treaty on the Functioning of the EU (TFEU) is the appropriate legal basis for this 
initiative to achieve these objectives. This article is the appropriate legal basis for measures aimed at 
achieving the objectives set out in Article 26 TFEU (harmonising national provisions).  

1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in 
nature? 

This  legislative  proposal  is  a  recast  of  the  Late  Payment  Directive  (LPD)  (Directive  2000/35/EC), 
based on Article 95 TEC. The LPD and its revision fall within the joint remit (‘shared competence’) of 
the EU and the Member States.  

2.  Subsidiarity Principle: Why should the EU act? 

2.1  Does the proposal fulfil the procedural requirements of Protocol No. 21: 

-  Has there been a wide consultation before proposing the act? 
- 

Is there a detailed statement with qualitative and, where possible, quantitative indicators 
allowing an appraisal of whether the action can best be achieved at Union level? 

The Call for Evidence was published for feedback from  12 January to 17 March 2023 and received 
137  replies.  Most  responses  came  from  business  associations  and  companies,  followed  by  public 
authorities,  citizens  and  other  organisations.  In  addition,  the  Commission  launched  an  online  public 
consultation on 12 January 2023, open for feedback until 17 March 2023, in line with the Commission 
Better Regulation rules. It contained questions covering a wide range of aspects of the LPD – some of 
them specifically targeted at companies. 117 replies were received in total. Other than that, a targeted 
SME  panel  took  place  between  26  January  and  16  March  2023.  In  total,  939  SMEs  replied  to  this 
consultation in the EU Survey webpage. Finally, an extensive number of meetings with stakeholders 
took place. The overview of consultation activities is presented in annex 2 of the impact assessment. 
The  explanatory  memorandum  and  the  impact  assessment  both  contain  an  assessment  allowing  an 
appraisal of the EU added value of the proposed action (see question 2.2 for more details).  

2.2  Does the explanatory memorandum (and any impact assessment) accompanying the 

Commission’s proposal contain an adequate justification regarding the conformity with the 
principle of subsidiarity? 

The evaluation of the Late Payment Directive concluded that the added value of having EU rules to 
combat payment delays was uncontested. 

The explanatory memorandum (section 2) and the impact assessment (section 3) provide a justification 
regarding the conformity with the principle of subsidiarity and address this issue in the context of the 
options analysed, where appropriate. 
The problem of late payments is widespread across the EU and affects all Member States. The causes 
of  the  problem  are  common  in  all  EU  Member  States.  Facilitating  prompt  payment  will  require  all 
Member States to make rules stricter in a coordinated way. Implementing 27 national solutions would 
likely  result  in  a  lack  of  uniform  rules,  fragmentation  of  the  single  market  and  higher  cost  for 

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companies trading across borders. The EU dimension is justified by the fact that this action affects all 
commercial transactions in public procurement and between businesses, regardless of their size. It is 
the very essence of the single market. This action concerns the revision of existing EU legislation, in 
order to strengthen its provisions; therefore, it can be done only at EU level.  
Some  EU  countries  have  introduced  national  rules  that  are  more  stringent  than  the  LPD  and  grant 
better protection to SMEs – for example capping payment terms in B2B transactions at 30 days when 
the creditor is an SME or setting up enforcement bodies. At the same time, some national legislations 
have  introduced  a  ban  on  assigning  receivables,  thereby  prohibiting  the  restriction  on  the  parties’ 
ability  to  assign  or  transfer  rights  that  helps  getting  finance.  To  avoid  fragmentation  of  the  single 
market, it is necessary to ensure homogenous implementation and enforcement of the rules.  
Similarly,  co-ordinated  action  is  required  to  tackle  the  asymmetry  of  power  and  asymmetry  of 
information, as well as means of redress across Member States.  
Therefore,  Member  States  acting  individually  could  not  satisfactorily  remove  the  barriers  to  ensure 
prompt payment across the EU. A coherent legal framework for payment terms, payments of interest 
and compensation and enforcement, can only be achieved at EU level. 

2.3  Based on the answers to the questions below, can the objectives of the proposed action be 

achieved sufficiently by the Member States acting alone (necessity for EU action)? 

Member  States  acting  individually  could  not  satisfactorily  remove  the  barriers  to  ensure  prompt 
payment  across  the  EU.  A  coherent  legal  framework  for  payment  terms,  payments  of  interest  and 
compensation and enforcement, can only be achieved at EU level. 

(a)  Are there significant/appreciable transnational/cross-border aspects to the problems being 

tackled? Have these been quantified? 

The problem of late payments is widespread across the EU and affects all Member States. The causes 
of the problem are common in all EU Member States. 

(b)  Would national action or the absence of the EU level action conflict with core objectives of 

the Treaty2 or significantly damage the interests of other Member States? 

Some  EU  countries  have  introduced  national  rules  that  are  more  stringent  than  the  LPD  and  grant 
better protection to SMEs – for example capping payment terms in B2B transactions at 30 days when 
the creditor is an SME or setting up enforcement bodies. At the same time, some national legislations 
have  introduced  a  ban  on  assigning  receivables,  thereby  prohibiting  the  restriction  on  the  parties’ 
ability  to  assign  or  transfer  rights  that  helps  getting  finance.  To  avoid  fragmentation  of  the  single 
market, it is necessary to ensure homogenous implementation and enforcement of the rules.  

(c)  To what extent do Member States have the ability or possibility to enact appropriate 

measures? 

Member States can select enforcement bodies, create alternative dispute resolution mechanisms, 
ensure digital tools are used by SMEs, adopt legislation to address unfair payment practices (and adopt 
legislation that sets payment terms below the maximum payment terms defined in the Regulation) 

(d)  How does the problem and its causes (e.g. negative externalities, spill-over effects) vary 

across the national, regional and local levels of the EU? 

Late payments are widespread across all EU countries. In 11 EU Member States, more than 50% of 
payments were made late in Q4 2021. However, even in the best performing EU Member States, more 
than  10%  of  all  invoices  are  paid  late.  Long  payment  terms  in  B2B  transactions  came  up  even  in 
countries with prompt payment traditions and drew the attention of regulators, e.g. in the Netherlands 
and  Sweden,  where  government  reviews  showed  increases  in  average  payment  terms.  In  all  EU 

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Member States, the average payment time is higher than the average payment term agreed. 

(e)  Is the problem widespread across the EU or limited to a few Member States? 

The problem is widespread across the EU. 

(f)  Are Member States overstretched in achieving the objectives of the planned measure? 

The problems in late payment are present in all MS.  

(g)  How do the views/preferred courses of action of national, regional and local authorities differ 

across the EU? 

Most  authorities  support  the  revision  as  confirmed  in  the  results  of  the  consultation  activities  (e.g. 
public  consultation  and  feedback  on  the  call  for  evidence).  According  to  the  results  of  the  public 
consultation,  there  is  a  strong  support  of  a  relative  majority  of  Member  States’  authorities  for  the 
capping  of  payment  with  a  preference  for  30  days  (8  replies  out  of  18).  Some  Member  States’ 
authorities  (5 replies  out  of  18)  prefer  to  not  change the  current  provisions.  This  is  reflected  by  the 
feedback received  for the call  for  evidence.  A large majority supported  the  proposal  to improve  the 
provision  of  training  on  credit  management  and  financial  literacy  while  the  views  are  mixed 
concerning the European Observatory of payments.  
The  views  of  authorities  are  more  divergent  as  to  the  legal  form  of  the  instrument,  with  most 
authorities in favour of maintaining a Directive. 

2.4  Based on the answer to the questions below, can the objectives of the proposed action be 

better achieved at Union level by reason of scale or effects of that action (EU added value)? 

Value added of EU action for this initiative is strong because it seeks to address a widespread, EU-
wide problem, which affects not only intra-Member State transactions, but also cross-border 
transactions in the single market. 

(a)  Are there clear benefits from EU level action?  

Value  added  of  EU  action  for  this  initiative  is  significant  because  it  seeks  to  address  a  widespread, 
EU-wide  problem,  which  affects  not  only  intra-Member  State  transactions,  but  also  cross-border 
transactions  in  the  single  market.  Payments  allow  the  single  market  to  function.  Late  payment  may 
affect any commercial transaction in the EU. This initiative concerns the revision of an already exiting 
EU  legislation  (Directive  2011/7/EU)  therefore,  it  can  be  done  only  at  EU  level.  Implementing  27 
solutions  to  lay  down  rules  on  national  level  would  risk  fragmenting  the  single  market  and  bring 
additional familiarisation and compliance costs for companies trading across borders in the EU. 

(b)  Are there economies of scale? Can the objectives be met more efficiently at EU level (larger 

benefits per unit cost)? Will the functioning of the internal market be improved? 

A coordinated action at EU level including Member States is required to: define provisions on interest 
and compensation fees (articles 3,4, and 6) so that they can be transposed in a uniform manner into 
national legislations, establish clearer payment terms for B2B, as well as enforcement and monitoring 
provisions,  that  apply  cross  border;  ensure  that  there  are  synergies  with  the  public  procurement 
framework, and especially taking into account that the National Recovery and Resilience Plans in the 
Member States are implemented primarily through public procurement. 

(c)  What are the benefits in replacing different national policies and rules with a more 

homogenous policy approach? 

The Regulation replaces the current LPD Directive. While some national legislation might need to be 

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adapted, there will be no need for transposition and therefore there is less replacement of national 
rules.  

(d)  Do the benefits of EU-level action outweigh the loss of competence of the Member States and 
the local and regional authorities (beyond the costs and benefits of acting at national, regional 
and local levels)? 

EU-level  action  brings  additional  benefits  compared  to  national,  regional  and  local  action,  as  many 
B2B transactions are  cross borders and common rules across the EU would therefore be simpler for 
businesses  to  understand.  EU-level  action  reduces  the  need  for  a  business  to  familiarise  themselves 
with payment regulation in each individual Member State. As the Regulation will replace an existing 
Directive,  Member  States  have  already  ceded  some  competence  under  the  baseline  scenario.  Where 
relevant,  certain  specific  provisions  could  explicitly  allow  Member  States  to  adopt  more  stringent 
provisions,  where  this  is  carefully  calibrated  so  as  to  allow  national  authorities  exercise  their 
remaining competence. 

(e)  Will there be improved legal clarity for those having to implement the legislation? 

Yes. There will be one set of rules applicable, present in the Regulation. 

3.  Proportionality: How the EU should act 

3.1   Does the explanatory memorandum (and any impact assessment) accompanying the 

Commission’s proposal contain an adequate justification regarding the proportionality of 
the proposal and a statement allowing appraisal of the compliance of the proposal with the 
principle of proportionality? 

The measures proposed impose only the cost on businesses that is necessary to achieve the objectives 
and leave room for discretion to Member States in how enforcement bodies are designated. 
The  measures  proposed  are  well  targeted  as  they  focus  on  the  needs  of  their  direct  users  (e.g. 
companies, in particular SMEs) to prevent late payments from occurring and making timely payments 
actually happen. 
The  summary  of  costs,  benefits  and  impacts  on  stakeholders  of  the  preferred  combination  of  policy 
options  is  presented  in  Annex  3  of  the  impact  assessment.  The  assessment  of  all  policy  options  in 
terms of proportionality is provided in section 7.2 and more specifically in section 8 for the preferred 
policy option. 

3.2  Based on the answers to the questions below and information available from any impact 
assessment, the explanatory memorandum or other sources, is the proposed action an 
appropriate way to achieve the intended objectives? 

In line with the principle of proportionality, the planned initiative will not go beyond what is necessary 
to achieve its objectives by revising the current rules applicable to all commercial transactions in 
public procurement and between businesses, which could not be achieved by Member States on their 
own. 

(a)  Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on 

their own, and where the Union can do better? 

This initiative seeks to address a widespread, EU-wide problem, which affects not only intra-Member 
State transactions, but also cross-border transactions in the single market. This initiative concerns the 
revision of an already exiting EU legislation (Directive 2011/7/EU) therefore, it can be done only at 
EU level. Implementing 27 solutions to lay down rules  on national level would risk fragmenting the 
single market and bring additional familiarisation and compliance costs for companies trading across 
borders in the EU. 

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(b)  Is the form of Union action (choice of instrument) justified, as simple as possible, and 

coherent with the satisfactory achievement of, and ensuring compliance with the objectives 
pursued (e.g. choice between regulation, (framework) directive, recommendation, or 
alternative regulatory methods such as co-legislation, etc.)? 

The instrument chosen is a regulation, which will replace the current Late Payment Directive. 
A  regulation  will  repeal  and  replace  the  current  directive,  the  provisions  of  the  future  act  would  be 
drafted in such a way that they are directly applicable. Such provisions would be directly applicable in 
all  Member  States  since  its  entry  into  force.  While  national  law  would  need  to  adjust  to  the  EU 
regulation, there would be no need for a transposition. A regulation would be binding and the same 
rules would apply in all Member States. This could happen in particular as regards measures such as 
the setting of maximum payment terms, the duration of the verification procedures or the rate of late 
payment interests and the amount of the flat fee compensation.  

(c)  Does the Union action leave as much scope for national decision as possible while achieving 

satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum 
standards or use a less stringent policy instrument or approach?) 

As  a  minimum  harmonisation  instrument,  the  regulation  would  also  lay  down  obligations  and 
definitions  concerning  the  designation  of  national  enforcement  bodies,  national  mediation  systems, 
credit management and financial literacy training and unfair contractual practices and provisions, but it 
would  be  for  the  Member  States  to  complement  them  as  these  provisions  might  not  be  directly 
applicable. 

(d)  Does the initiative create financial or administrative cost for the Union, national governments, 
regional or local authorities, economic operators or citizens? Are these costs commensurate 
with the objective to be achieved? 

The  initiative  creates  some  costs  for  public  authorities  as  well  as  businesses.  These  costs  are  fully 
assessed in the accompanying impact assessment (a summary of these costs is provided in annex 3 of 
the  impact  assessment).  Most  costs  affecting  businesses  are  one-off,  such  as  updating  standard 
invoices, while recurring costs are mainly borne by debtors that currently pay late. It is important to 
note that debtors can avoid most of these costs by paying on time. Public authorities would face some 
costs  to  designate  and  run  the  enforcement  and  mediation  bodies  foreseen  in  this  initiative.  The 
initiative imposes only the cost on businesses and public authorities that is necessary to achieve the 
objectives. Overall, the benefits are judged to significantly outweigh the associated costs, even under 
conservative assumptions for resulting benefits. 

(e)  While respecting the Union law, have special circumstances applying in individual Member 

States been taken into account? 

It  will  be  for  Member  States  to  better  decide  how  to  implement  the  obligations  concerning  the 
designation  of  national  enforcement  bodies,  national  mediation  systems,  credit  management  and 
financial  literacy  training  and  unfair  contractual  practices  and  provisions,  in  accordance  with  their 
individual circumstances/ national laws. 

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