Despite some improvements during the past years, late payments in commercial transactions between companies or between businesses and public authorities still happen in the EU. This hampers the development of business and is even responsible for bankruptcies of otherwise viable companies, notably if they are Small- or Medium-Sized Enterprises (SMEs). Unfortunately up to now the payment culture of public authorities is not always applaudable. Given the current crisis, several Member States have therefore started to address this issue at national level.

Based on a commitment in the Small Business Act, the Commission today suggests a new policy approach to tackle the situation on late payments and proposes substantial changes to the late payment directive of 2000. The Commission suggests that public authorities should lead by example and should – as a rule – pay their bills within 30 days. In parallel, the Commission commits itself to speed up payment of goods and services so to fully respect the targets for paying bills and, in a number of cases, even shortening payment times to under the current legal period.

The proposed changes reflect the importance of timely payments to businesses, and especially to SME's:

• As a rule public authorities should pay within 30 days otherwise they will have to pay interest, a compensation for recovery costs and a flat-rate compensation of 5% of the amount due, which kicks in from day 1 of the delay. In duly justified cases the payment periods can be longer.
• The freedom to contract will be respected in business to business relations, however in case of delay businesses will be entitled to claim late payment interest and a compensation of recovery costs.
• The rules on grossly unfair contracts are tightened.
• This proposal aims at improving the cash flow of European business which is particularly important in times of economic downturn. It also aims at facilitating the smooth functioning of the internal market via the elimination of related barriers to cross-border commercial transactions.

It will achieve this by providing creditors with instruments that enable them to fully and effectively exercise their rights when paid late and by confronting public administrations with measures that effectively discourage them from paying late.