The European Union’s proposed Late Payment Regulation (LPR), a revision of the Late Payment Directive (2011/7/EU), has sparked responses from the International Chamber of Commerce (ICC) and the International Trade and Forfaiting Association (ITFA).

These responses, echoing concerns raised in by other industry associations and leaders (see TFG’s previous coverage on the LPR), delve into the complexities of the proposed changes and their potential impact on trade and supply chain finance.

Whilst both organisations commend the EU’s core purpose of the directive, that is, “creating a culture of reliable and timely payment”, the unintended consequences might have broader impacts for SMEs.

ITFA’s analysis of the EU Late Payment Regulation

ITFA’s response to the European Commission’s consultation on the directive highlights several key areas of concern:

Uniform Payment Terms: ITFA notes the directive’s standardisation of payment terms at thirty days fails to consider the diverse nature of value creation chains across industries, potentially leading to operational challenges and increased costs.

Negotiated Terms vs Abusive Late Payment: The association emphasises the importance of distinguishing between mutually agreed commercial terms and abusive late payments, advocating for stricter measures against the latter.

Impact on SMEs and Supply Chains: The directive could significantly affect supply chain dynamics and SMEs, potentially forcing SMEs into unfavourable borrowing to meet the strict 30-day payment term.

Level Playing Field: ITFA raises concerns about the directive potentially creating an uneven playing field between public and private sectors. 

If the regulation only applies to SMEs, large corporate buyers might avoid this operational burden by sourcing from non-SMEs, leading to unintended consequences contrary to the regulation’s objectives.

ICC’s commentary on the proposed regulation

The ICC’s commentary aligns with ITFA’s concerns, focusing on the directive’s potential to disrupt established business practices and supply chain finance mechanisms.

Both ITFA and ICC propose that a shift towards digital adoption in supply chain processes could offer a more effective solution. 

This approach could streamline invoice and payment processing, reducing the likelihood of late payments.

The responses from ITFA and ICC, echo other industry leaders as previously reported by TFG, suggesting that the EU’s proposed directive, while well-intentioned, may benefit from targeted amendments.

A more nuanced approach, taking into account the diverse needs of different industries and the intricacies of supply chain finance, could address late payment issues without disrupting the broader economic framework.