In 2011 the European Union decided to implement a series of common measures to curb delinquency among companies. This initiative materialized in the Directive 2011/7 / EU that aims to reduce payment terms in commercial operations.
The Directive, which was transposed into the Spanish legal system in February 2013, includes rules for both payments from public entities to companies, as well as between private companies. It should be noted that public authorities are obliged to pay within 30 days, although some exceptional circumstances are established, in which case the term is extended to 60 days.
We must also know that at the time of the presentation of this directive, and according to the words of Antonio Cañete, companies in Spain charged an average of 156 days, while in France they charged after 52 days. This meant that Spanish companies had to advance more money than companies from the neighboring country, which was a very important competitive disadvantage.
It goes without saying, therefore, the negative repercussions of late payments on the liquidity of companies and their competitiveness. Reducing non-performing loans also means reducing financing needs.
For all these reasons, the commission recently commissioned a report to assess how these measures are being applied and the results that are being obtainedwhose conclusions have recently been published in Press release and we will try to summarize here.
Assuming that the specific objectives of the directive are:
- That creditors are paid on time and that they have measures in place that allow them to fully and effectively exercise their rights when they collect late.
- Establish strict measures that discourage debtors from paying late or establishing excessively long contractual payment terms.
What is extracted from the report is in summary the following:
- That there has been a decrease in more than 10 days of the average payment period. But today, more than half of the public entities of the member states still do not respect the 30-day period adopted by the legislation. In the private sector the results have been much better but still 4 out of 5 companies continue to experience late payments.
- That the directive awareness of the problem of delinquency has increased at the political and authority levels. The result of this implication is that companies are increasingly aware of the regulations regarding late payment, as well as their rights.
- On the other hand, it has been calculated that European companies They saved 158 M euros of financial costs for each day of reduction of the payment term. We know that "poor management of payments and collections forces us to find solutions that will involve financial expenses."
- There is no doubt that the publication of this Directive was a necessary measure and that it is proving effective, but to what extent can these measures be the desired success when it comes to that an ongoing business relationship is at stake? Who wants to risk losing a client for filing a lawsuit? The reality is that "approximately half of the creditors do not exercise their rights to claim default interest and other compensation for fear of damaging their business relationships; or others, especially when it comes to transactions with large companies, accept longer terms as they are inherent to their commercial activity. This is the main obstacle so that the objectives of the directive can be fulfilled ”.
To conclude, the report prepared proposes some actions to the member states for the future improvement and effectiveness of the purpose of the Directive, among which we highlight: Encourage the development and implementation of supportive initiatives, such as prompt payment codes, mediation, and incentives for prompt payment (identification and public complaint), etc.
The conclusion, as the press release summarizes, is that the average payment period has decreased, but more efforts are needed.
We will wait to see what the next report says to see if the Directive is really effective since some effects of it may take longer to materialize.
Matilde Tatay
Recovery Area
Sources: European Commission-Press Service, European Commission-News Area