Contact Members Join
AmCham Romania
Members only
Home |Privacy policy
Business Intelligence New EU Regulation Proposes Shorter Payment Terms for European Businesses

New EU Regulation Proposes Shorter Payment Terms for European Businesses

by Simion & Baciu Law Firm November 21, 2023


Delaying payments in commercial transactions can significantly hinder the activity of a commercial company, creating major discomfort in relationships with third parties. To protect European businesses, especially SMEs, from delayed payments, in February 2011 the EU adopted Directive 2011/7/EU on combating late payment in commercial transactions, transposed into Romanian legislation by Law No. 72/2013 on measures to combat delays in the execution of payment obligations arising from contracts concluded between professionals and between them and contracting authorities.

Even so, at present, at EU level, on average, one in two invoices issued in commercial transactions is paid late (or not at all), while one in four bankruptcies is due to invoices not paid on time.

The volume of exchanges between entities in EU member countries has made it necessary to revisit the existing provisions to increase their relevance in the current economic context and align them with the reality governing transactions relevant to these regulations. For example, there has been a need to shorten payment terms, from the current 60 days to 30 days (without the possibility for parties to agree on a longer payment term) in perspective, facilitating a much faster closure of financial and accounting loops. Thus, the Proposal for a Regulation of the European Parliament and of the Council on combating late payment in commercial transactions ("the Regulation Proposal") emerged. The proposal was published by the European Commission on September 12, 2023, and is intended to provide a well-deserved update to the Directive, which it will also repeal.

It is important to emphasize that the effects of this legislative proposal are intended to be substantial and will have a major impact on the activities of entities in Romania through the amendments/modifications that will be made to Law No. 72/2013. At the European level, retailers have already warned that the anticipated changes in the legislative framework will lead to an increase in prices.

How does the new regulation change the legal payment terms?

Currently, the Directive sets a payment term of 30 days for both transactions between businesses and transactions between businesses and public authorities. However, this term can be extended to 60 days or even more "if it is not grossly unfair to the creditor."

In implementing these provisions, Law No. 72/2013 regulates a payment term of 30 days as a rule in relationships between public authorities and businesses, while the payment term between professionals is set at a maximum of 60 days. The law allows, exceptionally, that parties may agree on a longer payment term, provided that this clause is not abusive (not grossly unfair to the creditor).

In this context, the Regulation Proposal aims to simplify the current provisions by introducing a single payment term applicable uniformly across the EU: a maximum of 30 calendar days from the date of receipt of the invoice or an equivalent payment request for all commercial transactions, both for transactions between businesses (professionals) and transactions between public authorities and businesses. The proposal does not affect shorter payment terms provided for in national legislation to ensure legal certainty.

What other innovations does the Regulation Proposal bring?

A series of rules aimed at improving the legislative framework for combating delayed payments in commercial transactions will be introduced by the new legislative act, examples of which include:

  • Limiting the period for receiving or verifying goods: this cannot exceed 30 calendar days from the date of delivery of goods or provision of services.
  • Late payment interest: the debtor of a payment obligation is required to pay late penalties, automatically due by the debtor to the creditor without the need for other formalities. The creditor will not have the option to waive the right to obtain these penalties.
  • Compensation for debt recovery costs: creditors are entitled to compensation for costs incurred in connection with the recovery of owed sums, with debtors automatically owing a fixed amount of 50 euros per transaction.

The creditor will not have the option to waive this right.

  • Nullity of certain clauses: Clauses will be void that:

  1. establish a payment term of less than 30 days,
  2. exclude or limit the creditor's right to obtain late payment interest and compensation for late payment costs,
  3. extend the 30-day period for the reception or verification of goods, or
  4. intentionally delay or prevent the invoicing moment.

  • Special debt recovery procedure: Creditors must be able to obtain an enforcement title, including through an urgent procedure and regardless of the value of the claim, within a maximum of 90 calendar days from filing the action or application to court or another competent authority, provided that the owed amount is not contested.

Currently, Law no. 72/2013 stipulates that if the debtor delays payment, the creditor can obtain an enforcement title through the payment order procedure. The novelty brought by the Regulation Proposal is represented by the 90 calendar days period in which the enforcement title must be issued.

When will the new rules come into effect?

According to the published form, the new provisions will become applicable within 12 months from the date of entry into force of the Regulation, and commercial transactions conducted after the Regulation's effective date will be subject to its provisions, even if the contract was concluded before that date.

The current form of the regulation may undergo changes before becoming effectively applicable. However, it is certain that the operational elements and the consequences of payment flows in commercial transactions will undergo substantial adjustments that need to be implemented by all parties involved.

The full text of the legislative proposal can be consulted here, and its status can be checked here.

More from Business Intelligence

Previous Next