Reports out of Germany indicate the government may be inching closer to in-country implementation of the European Union’s Directive 2011/7/EU, the Late Payment Directive.  Germany was one of the final holdouts among the 28-member bloc and an important one, given its stature in the Union.  Still, many are skeptical that, even with the Germans on board, the Directive will be all that effective or widely used.

The Directive, by almost all admissions among credit professionals and economists polled, is having a minimal impact on B2B credit and collections. It was designed to put an EU-wide framework behind the enforcement of tough regulations for prompt payment to creditors (especially SMEs).  Minimal application of the Directive could be traced, perhaps, to the slow implementation by the standard-bearing economy of Germany.  If Germany is serious about implementation, it could become more useful, but any massive impact of businesses invoking the Directive and taking action against a debtor still appears quite unlikely.

Courtesy Brian Shappell, CBA, CICP, NACM staff writer (National Association of Credit Management)

The EU directive was designed to help Small and Medium Size Enterprises (SMEs) to be able to better manage their cash flow.   In particularly larger companies were accused of stringing out trade payments to smaller companies beyond reasonable terms.  Unfortunately there is a lot of skepticism in the ranks of credit managers whether this directive is enforceable. 

European FlagThe new EU Directive:  2011/7/EU

The new Directive had to be transposed into national law by 16 March 2013 at the latest. 26 out of the 28 Member States have already notified their national transposition measures to the European Commission. The main provisions of the new Directive are the following:

  • Harmonization of period for payment by public authorities to businesses: Public authorities have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.
  • Contractual freedom in businesses commercial transactions: Enterprises have to pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair.
  • Enterprises are automatically entitled to claim interest for late payment and are also able to obtain a minimum fixed amount of €40 as a compensation for recovery costs. They can claim compensation for all remaining reasonable recovery costs.
  • The statutory interest rate for late payment in the Member States should be increased to at least 8 percentage points above the European Central Bank’s reference. Public authorities are not allowed to fix an interest rate for late payment below.

Member States may continue to maintain or to bring into force laws and regulations which are more favorable to the creditor than the provisions of the new Directive.