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European Parliament: If you don't pay, you will pay

New late payments rules directive passed by EU members

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Public authorities must pay their bills within 30 days and companies within 60 days, according to a new European Union Directive that has been approved by the European Parliament.

Organisations that do not pay invoices within those deadlines will face set penalties and punitive interest rates that they cannot change regardless of what their sales contract says.

The Parliament has approved a European Commission and European Council proposal for a new directive to replace the existing Late Payments Directive of 2000. The new rules aim to give certainty to companies, especially to small- and medium-sized enterprises (SMEs).

The directive will fully harmonise the period within which payment is due at 30 days. Companies dealing with other companies will be able to set that period at 60 days in their contracts, but must pay bills within 30 days if no contractual period is set.

Contracts will not be able to extend that period beyond 60 days "unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor", according to the new directive.

Organisations that break those rules will have to pay interest at 8 per cent above the European Central Bank's reference rate. They will also have to pay fixed fees to companies to cover costs. This will be set at a minimum of €40 but can cover all reasonable costs.

The European Commission said that it believed that, once implemented by EU member states, the new rules would result in an extra €180 billion being "available to businesses".

“Who works must be timely remunerated," said Commissioner for Industry and Entrepreneurship Antonio Tajani. "This is a basic principle of fairness but plays a crucial role in relation to the solidity of a company, its treasury, its access to credit and to finance. Therefore, the new directive will help the entire European economy.”

"This directive will pave the way for a whole new payment culture," said MEP Barbara Weiler in the parliamentary debate. According to a European Parliament statement, Weiler said: "We have aimed to ensure that the rights of the smaller companies are enforced in order to improve liquidity and create a better climate for investments into new jobs."

The Late Payments Directive had set the rate at which interest could be charged at a minimum of 7 per cent, though under UK law it was 8 per cent.

The European Commission said that the new directive would make it easier for a company to challenge unfair behaviour by its debtors in the courts, and that it would force countries to adopt "prompt payment codes".

"Let me congratulate this House for the work in favour of a new directive on combating late payment in commercial transactions," said European Commission president José Manuel Durão Barroso in the European Parliament. "The directive will give better protection to creditors, in most cases SMEs, while respecting the freedom of contract ... you know how much this regulation has been awaited by SMEs, the most important sector of our economy."

The text adopted by the European Parliament said that the proposals were seeking to achieve a legitimate aim and should be supported.

"The objective of combating late payments in the internal market cannot be sufficiently achieved by the member states acting individually and can, therefore, be better achieved by the Union," said the adopted text. "This Directive does not go beyond what is necessary to achieve that objective. This Directive complies therefore, in its entirety, with the requirements of the principles of subsidiarity and proportionality as laid down in Article 5 of the Treaty on European Union."

The directive will be adopted in the coming weeks and will come into force in member states within two years' time. It must, then, be in force by the beginning of 2013, the commission said.

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OUT-LAW.COM is part of international law firm Pinsent Masons.

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