4 Combating late payments
(30554)
8969/09
+ ADDS 1-2
COM(09) 126
| Draft Directive on combating late payment in commercial transactions (recast) — Implementing the Small Business Act
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| Legal base | Article 95EC; co-decision; QMV
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| Document originated | 8 April 2009
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| Deposited in Parliament | 22 April 2009
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| Department | Business, Enterprise and Regulatory Reform
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| Basis of consideration | EM of 7 May 2009
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| Previous Committee Report | See para 4.6
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
4.1 According to the Commission, late payments in commercial transactions
affect the competitiveness and viability of companies, this being
a particular problem for small and medium sized enterprises (SMEs),
whose need for effective access to finance was highlighted in
the Small Business Act.[15]
In addition, it says that such payments can have a negative effect
on intra-Community transactions, and it notes that, in order to
combat these risks, the Community adopted Directive 2000/35/EC.[16]
Among other things, this obliges Member States to lay down that
interest (at a rate up to seven percentage points higher than
that set from time to time by the European Central Bank)[17]
must be charged when payment is not made within the deadline agreed
in the contract, or 30 days in the absence of an agreed date.
It also specifies that agreements which, without an objective
reason, are not in line with the provisions laid down in the Directive
in terms of the payment date or the consequences of late payment,
may be deemed grossly unfair to the creditor, and thus either
give rise to a claim for damages or not be enforceable: and it
contains provisions governing the retention of title and recovery
procedures.
4.2 Despite this, the Commission says that there
is overwhelming evidence that late payments are still a general
problem, due to a range of factors, such as market structure,
access to finance and budgetary constraints, the management practices
of both debtors and creditors, and the absence of effective and
efficient remedies (not least the decision of many businesses
not to charge interest when entitled to do so, or to take recovery
action). It also highlights in particular the evidence of unjustifiably
long contractual payment periods in transactions involving public
administrations, drawing attention to the large sums involved
(put at some €1900 billion a year) and to the need for more
severe sanctions, bearing in mind that late payments by public
authorities are avoidable because they do not face the same financing
constraints as businesses. Finally, it suggests that the risk
of late payments increases strongly in periods of economic downturn
when access to finance is particularly difficult, and that there
are signs of this happening in the current economic downturn:
and it points out that the European Economic Recovery Plan,[18]
not only stressed that affordable access to finance was a pre-condition
for investment, growth and job creation, but also asked the Community
and Member States to ensure that public authorities pay invoices
within a month.
The current proposal
4.3 Against this background, the Commission has put
forward this proposal to recast Directive 2000/35/EC,[19]
in order to improve the effectiveness and efficiency of the remedies
it provides for late payment. Thus, whilst largely retaining the
existing provisions in the Directive, it would:
- extend the measure to include
claims for interest of less than €5;
- entitle creditors, as compensation for recovery
costs when interest becomes payable, to a payment of €40
for a debt of less than €1,000, a payment of €70 where
the debt is between €1,000 and €10,000, and a payment
equivalent to 1% of the amount concerned, where the debt is €10,000
or more;
- enable creditors to obtain, in addition to these
amounts, reasonable compensation for all remaining recovery costs;
- require public authorities, as a general rule,
to pay for goods and services within 30 days, failing which creditors
would, in addition to interest for late payment and compensation
for recovery costs, be entitled to compensation of 5% of the amount
involved;
- strengthen the provisions on grossly unfair contractual
clauses by applying these automatically to contracts which exclude
interest for late payments.
The Government's view
4.4 In her Explanatory Memorandum of 7 May 2009,
the Minister for Economic Competitiveness and Small Business (Baroness
Vadera) notes that the two key differences so far as the UK is
concerned are the 5% compensation payable where the debtor is
a public authority, and the setting of compensation for debts
of €10,000 or more at 1% (in contrast to current UK legislation
which imposes a flat rate figure of £100 for debts in excess
of £10,000).
4.5 Having said that, the Minister points out that
the UK was one of the first countries in the world to introduce
late payment legislation, and that the Government supports the
measures in the proposal. She also says that the UK has a long-standing
public sector contractual payment commitment of 30 days, after
which compensation and late payment can be claimed, and that it
has built on this by committing central government departments
to paying invoices within 10 days (with 9 out of 10 invoices having
been paid within that deadline in March 2009). She adds that recent
survey evidence suggests that about one third of local authority
respondents are paying within 10 days, compared with 1 in 20 last
year, but that there appears during this period to have been a
three day deterioration in payments beyond contractual terms between
businesses.
4.6 The Minister says that she expects the proposal
to be considered by the Competitiveness Council towards the end
of 2009, and that the Government will be providing an Impact Assessment
in due course.
Conclusion
4.7 We note that the Government will be providing
an Impact Assessment, and, whilst we are reporting this document
to the House, we think it right to hold it under scrutiny until
we have received that Assessment.
4.8 In the meantime, we have one observation on
which we should welcome the Government's comments when it provides
its Impact Assessment. It would appear that one of the reasons
put forward by the Commission in support of its proposal is the
alleged reluctance of many businesses to charge interest, even
when they are entitled to do so, and the view taken by some creditors
that the cost of taking action against late payment is not justified
by the financial benefits. We can well imagine that to be the
case, particularly where a small business is supplying goods or
services to a much larger enterprise, and that it reflects the
relative size (and bargaining power) of the businesses concerned.
It therefore seems to us unlikely that the additional penalties
now proposed would materially alter that situation, and we would
be interested to know whether that is also the Government's view.
15 (29791) 11262/08: see HC 16-xxix (2007-08), chapter
8 (10 September 2008). Back
16
OJ No. L.200, 8.8.00, p.35. Back
17
Or the relevant central bank, in the case of Member States not
participating in economic and monetary union. Back
18
(30213) 16097/08: see HC 19-I (2008-09), chapter 4 (10 December
2008). Back
19
OJ No. L.200, 8.8.00, p.35. Back
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