Lessons Learned from the Stalled EU Late Payment Regulation

Last month, the European Commission scrapped one of its most ambitious initiatives to curb late payments for B2B transactions. Proposed in September 2023, the Late Payment Regulation limited payment terms to a maximum of 30 days. The European Parliament adopted an amended version in April 2024, but sources have confirmed the reforms will be withdrawn. 

This is the latest chapter in a well-intentioned but miscalculated thirteen-year effort to protect suppliers. The Late Payment Regulation proposed last year was meant to be a “fix” to an ineffective Late Payment Directive issued in 2011. That directive lacked both clarity and enforcement, prompting the European Commission to propose stricter terms and enforcement measures. 

Despite their efforts, the regulation was met with resistance from virtually every group it affected. This included trade bodies, financial institutions, nearly half of EU member states, and – perhaps most telling – many of the very businesses it aimed to protect.

Unintended Consequences Would Be Untenable

It’s important to note that late payments are a growing concern for many suppliers, particularly SMEs. Studies show more companies are getting paid late than in previous years, putting tremendous financial strain on suppliers. According to the Atradius Payment Practices Barometer, late payments increased in 2024 to an average of 49% of all B2B sales in Western Europe and 46% in Eastern Europe. 

However, the regulation would have had several unintended consequences that could harm (rather than help) businesses: 

• It would be grossly unfair to certain industry sectors. Certain industry sectors like publishing, retail, and seasonal goods require longer payment terms. This is due to the nature of their business rather than an attempt to improve cash flow at the expense of suppliers. While the amended regulation added some flexibility, it failed to acknowledge a key issue: Buyers and suppliers have a right to negotiate payment terms that are a win-win for both entities and ensure the long-term financial viability of all parties involved. 
• Early payment programs like supply chain finance would be in peril. Around the world, suppliers rely on early payment programs to improve cash flow. For suppliers used to receiving payments on Day 7, 10, 15, or 20, a mandatory 30-day payment term would mean facing longer payment terms as buyers will have little incentive to pay before day 30, and financial institutions will be unlikely to provide financing for 10 to 20 days. Ultimately, this would force suppliers to seek more expensive liquidity alternatives to fill the gap, leading to more debt. The fact that many businesses voiced their concerns speaks volumes! 
• There would be widespread economic implications. Implementation of the regulation would have substantially increased the working capital requirements of companies working in the EU. Our previous analysis indicates it could have cost companies nearly €1b per €10b of trade if payment terms decreased from 60 days to 30 days. That’s money that could be spent on things like innovation, growth, energy transition, and infrastructure investment. 

Suppliers Need the Freedom to Get Paid Whenever, However They Choose

The European Commission “stands behind its proposal for stricter rules to combat late payments” and it’s likely this won’t be the last we hear of their attempts to come up with a new payment framework. Whatever the next step may be, it’s crucial for all parties to acknowledge two important things. 

First, payment terms beyond 30 days are not the issue. The real problem is getting paid later than the agreed term – whatever it may be – and not having visibility into B2B payments. As we’ve said before, tens of thousands of suppliers in the EU participate in early payment programs that eliminate late payment while also providing affordable access to capital. 

Second, suppliers should be free to get paid whenever and however they choose, as negotiated with their customers. Some suppliers choose to be paid on time directly by their customers. Others prefer early payment through a third party, as is what happens with suppliers who choose to participate in a supply chain finance program. 

A one-size-fits-all approach to payment terms disregards important industry and business-specific nuances that must be accounted for. It has the potential to give suppliers fewer payment options that align with their cash flow needs. In the end, it should be up to the buyer and supplier to determine the most efficient source of payment that will meet their financial requirements.