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EU Late Payment Directive Revamp Flawed

Trying to ease the concerns of companies doing business with any state-related entity in the European Union (EU), officials there remain confident that some payment safeguards will be widely in effect by 2013. However, the directive is far from air tight.

Coming on board soon to help ease fears in the commercial payment market is the implementation of an EU Late Payment Directive revamp. This is slated to affect all dealings between public authorities and private companies. The guiding tenet of the directive is to create the statutory right to interest when an invoice is 30 days past due, unless an exception has been negotiated. EU officials claim it will "harmonize" payments by forcing governments to pay for goods or services within 30 or, at worst, 60 days, in theory. Those businesses that do have to file a claim at 60 days past due can force compensation for recovery costs, and the anticipated rate of interest is expected to exceed the European Central Bank's reference rate by 8%.

In theory, it's a great way to protect the smallest and most vulnerable businesses involved in the EU economy. However, FCIB Board Member Angela Bradbury, MICM, CICP notes that "as usual," each EU member has voiced its own interpretations of the directive and plans for phasing it in.

"There are flaws in the plan," she said. "While these are now the standard terms, smaller companies are unlikely to take their blue chip customers to court and risk the business. Also, terms relating to a contract can be negotiated, so longer terms do often exist. So, while for the rank and file of business, it is a line in the sand and probably a good idea, in reality, it is not having a huge impact except in France." Bradbury added that there are some pretty significant ways to sidestep this in nations like Germany. That's not even to mention the reliability of several high-debt nations on payment promises. Frequent to disappoint in such areas, Greece jumps to mind.

Brian Shappell, CBA, NACM staff writer