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In a decisive move, Members of the European Parliament (MEPs) have endorsed new regulations aimed at addressing the pervasive issue of late payments, significantly affecting Small and Medium-sized Enterprises (SMEs) across the European Union.

With a considerable portion of invoices within the EU not being settled on time, the new measures introduce a stringent 30-day payment term for both business-to-business and government-to-business transactions, albeit with some exceptions under specific conditions.

The Committee on Internal Market and Consumer Protection has adopted its position on the regulation that seeks to enhance payment discipline among various entities, including large corporations, SMEs, and public authorities.

This initiative underscores a significant effort to boost the competitiveness and resilience of companies, particularly SMEs which represent 99% of EU businesses and are crucial for the economy.

The proposed regulation stipulates a maximum payment term of 30 days, with the possibility of extending up to 60 days for business-to-business transactions, provided it is explicitly agreed upon in the contract.

Special considerations are given to the retail sector, allowing for payment terms up to 120 days due to factors such as seasonality and product turnover, with the European Commission set to issue guidelines for clarity.

To safeguard companies, especially SMEs, from detrimental payment delays, the regulation mandates automatic compensation for late payments, ranging from 50 to 150 euros per transaction, depending on the value.

New mechanisms for enforcement and redress are introduced, alongside measures to raise awareness and promote the use of electronic tools to expedite payment processes.

A European Observatory of Late Payment will be established to monitor and disseminate data on payment practices, enhancing transparency and accountability across member states.

Rapporteur Róża Thun Und Hohenstein highlighted the critical nature of this regulation, saying, “Unreliable cash flows can jeopardise SMEs and micro-enterprises, limiting growth, innovation and EU’s competitiveness.
With this regulation, we are not only protecting the smaller companies, which are the backbone of our economy, but above all, we introduce predictability and fairness for all European companies.

It is a major push towards fostering a better payment culture, beneficial for the entire European economy.”

The draft report received broad support within the committee, marking a pivotal step towards its presentation at the upcoming plenary session in April, where it will form the basis of the Parliament’s position.

This development is part of a larger strategy to enhance the operational environment for SMEs in Europe, addressing the challenges posed by late payments that exacerbate the risk of bankruptcy and hinder business planning.