Those involved in the trade sector in the EU have closely followed developments to a proposed new Late Payment Regulation (LPR) since it was first published by the European Commission in September 2023.
The LPR aimed to build on the existing Late Payment Directive by harmonising requirements across the EU and introducing new rules which would limit allowable payment terms, strengthen late payment penalties, and create new enforcement authorities, among other measures.
The Commission pointed to existing poor payment behaviour across the bloc and the negative impact this can have, with a particular focus on SMEs. It also highlighted a separate issue of what it saw as the abusive practice of large corporates forcing unreasonably long payment terms onto SMEs as a further problem needing to be addressed.
The original proposal from the European Commission was introduced as part of a wider package of policies aimed at supporting SMEs against market abuse, low competitiveness, and weak growth. While most across the trade and related financial services sector acknowledged the problem of late payment, there was some alarm about the negative impacts the proposal could have on trade and commerce in the EU.
A central pillar of the LPR as initially drafted was the proposed introduction of a maximum payment term of 30 days on all business-to-business and government-to-business commercial transactions in the EU, regardless of size. This raised alarm among many groups representing businesses as it would have harshly restricted the ability for companies to negotiate payment terms suitable to their needs. On top of this, beefed-up penalties were also to be introduced, with the onus on the payee to collect interest from overdue counterparties. New member state enforcement authorities would also need to be created to monitor payment behaviour and the fairness of contractual terms.
Research from ICISA members at the time revealed that such a change to payment terms would create a financing requirement for SMEs of almost EUR 2 trillion. Such financing would be outside the means of many corporates, while banks are already limited in their appetite for SME business. Even if such financing could be found, the research highlighted by ICISA also indicated that interest payments alone would be inflationary. ICISA also engaged in the public discussion on the topic to help inform policymakers. This included a webinar explaining the LPR, and a further discussion during TCI Week 2024 featuring a leading Member of the European Parliament on the challenges posed by the regulation.
A focus on longer payment terms from the Commission also highlighted the apparent belief that these are equivalent to late payments. While imposing longer payment terms can be abusive in certain circumstances, they are not problematic alone. Longer payment terms are perfectly reasonable in many sectors where working capital and production cycles are longer and require more flexibility. The proposals also seemed to ignore that trade is not a one-way street from large companies to small. SMEs act as both creditors and debtors and can equally benefit from longer payment terms, and the ability to negotiate these when needed.
While limited support was expressed in some quarters for stricter regulation, many bodies representing corporates called for greater flexibility and a rethink of the proposals. Eurocommerce, for example, which represents European retailers and wholesalers, highlighted businesses’ concerns about the loss of contractual freedom and the needs of businesses of different sizes to be able to flex payment terms.
An amended version of the regulation was subsequently put forward by the European Parliament as part of the normal EU legislative process. The Parliament version softened some of the proposals, including calling for looser payment terms of up to 60 days in some cases. These terms could be extended under certain circumstances, such as if the transaction met a “slow and seasonal” goods exemption. However, these proposals ultimately maintained the weakening of contractual freedom for EU businesses; potentially incentivizing trade with non-EU partners who wouldn’t’ be captured by the LPR.
As the proposals made their way to the European Council for deliberation, it became clear that member states were not supportive of the proposals for a number of reasons. Member state governments expressed concern about the loss of contractual freedom and the lack of flexibility, but also about the interaction of the regulation with existing national regimes, which many member states were comfortable with.
The Polish government, which chaired the European Council in the first half of 2025, had sought to progress the LPR past these barriers. This included offering further amendments to soften the requirements and achieve a compromise. However, these proposals were finally rejected by the a European Council Working Party responsible for this topic earlier this year. The Polish Presidency subsequently reported that there was no prospect of a compromise to be found. The incoming Danish Council Presidency is also not expected to schedule the topic for further discussion, effectively ending the process.
While the LPR will not be brought forward again, late payment (rather than long payment terms) remains a concern for the EU and member state governments. Research from across the trade credit insurance industry indicates that payment terms and Day Sales Outstanding are lengthening in many markets, indicating stress. While this attempt at addressing late payment has ended, further work may be needed from policymakers to address poor behaviour and practices. There is a clear role for the trade credit insurance sector within this to help in the education of SMEs to better manage financial and credit risks. Further engagement on any future policy proposals will also be essential to ensure that these are fit for purpose and avoid the pitfalls evident in the LPR.
