Long Arm Of The Law

If you have 10,000 regulations, you destroy all respect for the law.- Winston Churchill

Concerns about supplier payment terms have been steadily increasing in Europe and these concerns have resulted in legislation regulating corporate supply chains. This regulatory movement started in France with the Modernization of the Economy legislation passed in 2008. It’s picked up steam this year with Spain’s Prompt Payment law (July 2010) as well as proposals from the European Parliament. Both the LME and Spain’s Prompt Payment law stipulate that supplier payment terms can not exceed 60 days from invoice date while the uniform EU payment terms proposed by the European Parliament’s Internal Market Committee (IMC) seek a maximum payment term of 30 days. As reported in euCommerz, the IMC proposal allows some leeway. Payment terms could be extended to 60 days as long as the terms are expressed in a contract and could be further extended provided that it does not cause unjustified financial harm to either party. The regulatory march may even extend to the US. The Massachusetts legislature has just passed a prompt payment law of its own which seeks to regulate private construction projects.

Sounds like there’s a role here for a service like Supply Chain Finance n’est pas? SCF would allow buyers to maintain current terms longer than 30 or 60 days without creating financial harm for suppliers thus allowing buyers with longer terms to remain in compliance with regulation proposed by the European Union. With credit remaining tight for non-investment grade organizations of all types, including small business, support for regulation of supplier payment terms is likely to gain steam in Europe and beyond.