Late payment is an existential problem for many small and medium-sized enterprises (SMEs). This is why the EU Commission adopted a directive to combat late payment in 2011. Its aim was to speed up the payment of invoices in business-to-business transactions and thus protect SMEs in particular from the consequences that late payments can have on their cash flow and liquidity. According to the directive, companies must pay invoices within a maximum of 60 days.

Almost 50% of invoices in the EU are still not paid within 60 days, and a quarter of all SME insolvencies are due to late or unpaid invoices. SMEs make up 99% of EU companies - they are all disproportionately affected by late payment.

The European Commission sees these dramatic figures as a threat to the stability of SMEs and is calling for a "cultural change" to reverse the trend and prevent late payments to suppliers. The plan: payments from companies to their suppliers should be made within a statutory payment period of 30 days - without exception.

What are the latest developments, how could the plans affect companies and how likely are they to be implemented? Find out in this chronological list.

October 2022

In October 2022, the European Commission included a legislative proposal to revise the Late Payments Directive in its work program for 2023 in order to counteract late payments and the resulting insolvencies.

September 2023

Almost a year later, on September 12, 2023, the European Commission publishes the announced proposal as part of a series of initiatives designed to meet the needs of European SMEs. The new rules are intended to repeal the 2011 directive on late payment and replace it with a new regulation.

This is the SME Relief Package, with which the Commission wants to strengthen the long-term competitiveness and resilience of SMEs and promote a fair business environment. In addition to the proposal for a regulation on late payments, it includes a proposal for a directive on tax simplification and a number of other measures to make it easier for SMEs to operate and improve their access to finance and skilled labor.

The proposed new regulation on payments aims to tackle late payments in commercial transactions by addressing late payments, which the EU says is an unfair practice that affects the cash flow of SMEs and the competitiveness and resilience of supply chains.

The proposal provides for a stricter maximum payment period of 30 days.

March 2024

Six months later, the Committee on Internal Market and Consumer Protection (IMCO) adopts its position on the regulation on combating late payment. The report aims to improve the payment discipline of all stakeholders (large companies, SMEs and public authorities).

Following intense criticism from associations and member states of the planned EU Late Payment Regulation, the EU Internal Market Committee finally agrees on a more moderate common position at its meeting on March 20, 2024. The corresponding proposal was adopted with 33 votes in favor, 10 against and 2 abstentions.

Fortunately, the clear criticism has had an effect. Particularly noteworthy in the draft report on the planned EU Late Payment Regulation is the stipulation of the general permissibility of up to 60 days' payment terms in the B2B sector, subject to prior agreement. Considering that specific retail business models and practices often require longer payment terms due to factors such as low product sales, seasonality or unique cycles for items (e.g. toys, jewelry, sports equipment or books), MEPs propose to allow payment terms of up to 120 days in these cases.

However, in order to protect companies from late payers, ensure timely receipt of payments and avoid cash flow disruptions, the adopted text provides for automatic payment of accrued interest and compensation fees for late payments.

MEPs agree that the debtor must pay between €50 and €150 (depending on the value) for each late payment to compensate the creditor's recovery costs. In addition, a European Observatory for Late Payments is to be set up to monitor, collect and share data on late payments and potentially harmful practices.

April 2024

The draft report from March is put to the vote at the plenary session from April 22 to 25.

Although the report provides for stricter maximum payment periods depending on the type of transaction and sector, freedom of contract is retained. MEPs propose a period of 30 days for government-to-government (G2B) transactions, 60 calendar days for B2B transactions if explicitly agreed in the contract, and 120 days in retail sectors with low product turnover or seasonal fluctuations.

From June 2024

The newly constituted Parliament is not expected to finally adopt the regulation until after the European elections in June 2024.

Possible Impact on Companies

As the outcome of the forthcoming meetings on late payments will not be known until after the European elections, we can only speculate at present as to how the amended directive will affect groups and suppliers. 

Should the proposals from September 2023 come into full force, this would present many companies with immense problems in terms of supply chain financing as well as working capital and liquidity management. The extent to which contractual freedom would be undermined by the amended directive would also need to be discussed. There are also fears that the measure to introduce uniform payment terms will not lead to more punctual payments. For this very reason, companies could be forced to partially exceed the agreed targets in future and pay high fines for doing so.

Should the more moderate position of 2024 prevail, there will be less fear of liquidity bottlenecks. This is because the right to negotiate will remain in place, giving companies the opportunity to agree longer payment terms with their suppliers and thus actively manage their working capital.

Win-win Thanks to Supply Chain Finance Solutions

Even if, after the European elections, it is decided that the 30-day payment target can be extended through individual negotiations, optimized working capital management is essential to secure liquidity, especially in times of inflation, interest rate reversals and the Ukraine war.

Supply chain finance solutions can help. However, conventional providers quickly reach the limits of their solutions. Although various technologies enable suppliers to pay out early with long payment terms at attractive conditions, most SCF providers always involve suppliers in the process, which requires lengthy payment term negotiations between companies and suppliers.

This is not the case with cflox pay, a solution that does not require any payment term negotiations, as suppliers are not involved in the process in any way. Suppliers receive their money within the prescribed payment term. However, the companies are only debited 60 days later. This gives them an additional payment term to manage working capital and liquidity. Thanks to quick and easy implementation - cflox pay is integrated like a new payment account - the solution can be implemented easily and enables direct effects.

This intelligent financing provides the necessary flexibility to comply with the possible new EU directive - in line with the active management of working capital and liquidity.

About cflox

cflox is an international payment institution that combines payment transactions with working capital and financing to create unique solutions. With a focus on supply chain finance, cflox offers its customers the optimization of payment terms and cash flow without the involvement of suppliers.

For more information visit cfloxpay.com

Press contact

Leonie Bauer

Content & Communications Manager

cflox GmbH

Gaußstraße 190c

22765 Hamburg

T   +49 1639267362

E   l.bauer@cflox.com