ICISA has provided regular updates in recent months on proposals within the EU to combat late payments. The latest news emerging from the European Council is that a blocking majority of member states has emerged there which will likely halt further progress in its current form.
ICISA sees this as a positive development and gives an opportunity to introduce better ideas which address the real problems underlying EU trade and commerce. This may include better enforcement mechanisms or other efforts to improvement payment terms and avoid abusive behaviours.
It is worth briefly re-capping the Late Payment story to this point. An initial proposal to address late payments was put forward by the Commission late in 2023 by the European Commission as part of a wider package of measures aimed at supporting SMEs. Central to this approach was a draft regulation which would introduce strict caps on payment terms, as well as restrictions on the ability of businesses to negotiate flexibly.
While noting the serious damage that late payments can cause to businesses, ICISA highlighted our concerns with the key ideas put forward by the Commission, and built upon by the European Parliament. This included providing evidence that shifting all Business-to-Business payment terms for SMEs to a strict 30-day window would create a new financing requirement of up to EUR 2 trillion.
ICISA called for a more effective approach which maintained contractual freedom and the essential flexibility for businesses of all sizes to negotiate in their best interest. This would reflect the different needs of businesses, taking into account differences in working capital requirements, production cycles and market dynamics.
Within EU legislative processes, an initial proposal is put forward by the European Commission, which is then reviewed by the co-legislators (European Council and European Parliament). Those two bodies develop their versions of the text and a final negotiation (trilogue) takes place between the European Council, European Parliament, and European Commission to form a final, combined text.
The Late Payment Regulation had progressed through the European Parliament with some amendments. This preserved the strict cap on payment terms, but introduced some limited flexibility for the as yet undefined, “slow and seasonal goods”. However, as the baton was passed to the European Council, we noted that member states had expressed strong reservations with the proposals. These concerns related not only to the restrictions proposed, but also the choice of instrument and the impact this would have on national regimes across the EU.
It was also unclear how this process would develop within the European Council due to the occurrence of European Parliament elections in early-June and the end of the mandate for the current iteration of the European Commission. However, on 12 June, a group of member states led by Germany and Austria wrote to the European Commission calling for the withdrawal of the proposed regulation.
This group of member states is large enough to form a blocking majority, meaning negotiations on developing a Council position cannot now move forward. In their strongly-worded letter they note, “It is now the Commission’s responsibility to heed this feedback and to withdraw its proposal”. Moreover, the group notes that, “…the Commission was not able to demonstrate…that the policy choices made in its proposal were appropriate to tackle the problem of late payment and to accommodate businesses’ needs”.
The option is left for the European Commission to bring forward an updated proposal which better addresses issue of late payments and member states’ concerns. Equally, the European Commission does not have to follow this request and other examples exist of times when similar feedback has been received and it defended its approach. However, given the tone of the feedback, the current political landscape, and the changes that will take place in the Commission following the European elections, there may be limited appetite to engage further on this matter now.
It therefore seems likely that – at least in its current form – the Late Payment Regulation will not proceed. ICISA will continue to monitor political developments and keep members informed of how this process evolves. It is also out intention to continue to engage with relevant stakeholders on this topic and to highlight the role our industry plays in supporting the real economy.
