Payable in 30 Days: What SMEs Need to Know About the Late Payment Di-rective

One in four insolvencies is due to late payments. Especially in business trans-actions between large debtors and small creditors, long payment terms re-peatedly lead to problems. As a result, particularly SMEs, which rely on pre-dictable cash flows, are forced to delay payments to their own suppliers, incur higher financing costs, and have less room for investments. With a directive aimed at combating late payments in commercial transactions, the European Commission intends to ensure more fairness. Moreover, it aims to enhance the competitiveness and resilience of small and medium-sized enterprises. While this sounds promising, it also has its drawbacks, according to experts Marc Fahrig and Ralf Ehret, who outline what businesses should now prepare for.


The regulation, approved by the European Internal Market Committee on March 20, 2024, applies to payments in transactions between businesses (B2B) or between businesses and public entities (B2G), where the public entity is the debtor, and which lead to the delivery of goods or the provision of services for consideration ("commercial transactions").

Certain payments are exempt from this directive, including payments for transactions with consumers, payments as compensation, and payments re-sulting from obligations related to insolvency or restructuring proceedings.

What Has Been Decided?

Following the Internal Market Committee's vote at the end of March, various involved associations, such as the Trade Association for Home & Office, and our assessment suggest the following new legal framework:

  • For commercial transactions, the payment term is a maximum of 30 calendar days from the date of receipt of the invoice or an equivalent payment request by the debtor, provided the goods or services were received in accordance with the contractual agreement. If the date of receipt of the invoice or the equivalent payment request is uncertain, the payment term may not exceed 30 calendar days from the date of receipt of goods or services.

  • In transactions between businesses, however, the payment term can be extended to up to 60 calendar days if this is explicitly agreed upon in the contract.

  • For the purchase of "slow-moving items" or "seasonal goods" such as summer merchandise, Christmas articles, etc., the payment term can be extended to up to 120 calendar days. The Commission is tasked with defining precisely which goods fall under this definition before the di-rective comes into effect.

Compared to the Commission's proposal, the results of the discussions in the Internal Market Committee are less stringent and offer companies more flexi-bility. This current proposal now has to be passed by the EU Parliament. The future course is currently uncertain. About a third of the members of the Internal Market Committee spoke against rigid payment terms, and resistance from various member states against the directive is also emerging in the Council.

How Is the Directive to Be Assessed Overall?

According to experts from SEB Bank, the EU Late Payment Directive is "an extremely underestimated topic." Should the directive enter into force as originally planned, it would have significant impacts on the liquidity situation of many companies that previously had longer payment terms with their suppliers. For example, companies might have to:

  • Accept a deterioration of the Free Cash Flow,
  • Require additional financing due to higher financial debts,    
  • Face worse financing and rating KPIs, such as Financial Leverage,     
  • Experience negative impacts on Supply Chain Finance programs.

Thus, the recent moderation of the directive from the original Commission's proposal is initially to be seen as positive. The envisaged strict payment term of 30 days is no longer planned. Associations like the HWB (Trade Association for Home & Office) have repeatedly emphasized in discussions with EU Parlia-ment members that such strict payment terms are not suitable for various industries.

Longer Payment Terms Remain Possible

It is all the more gratifying that, albeit limited, individual payment terms can still be agreed upon. There is now the possibility to extend the payment term to 60 and, where applicable, 120 days. It remains to be seen which industries will fall into the "slow-moving" category.

We recommend that banks and companies consider their current status and applicable payment terms. Moreover, they should promptly examine the po-tential impacts on their balance sheet through relevant scenarios and simula-tions and take appropriate measures. Our expert team is available to answer any questions on the topic.

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