Report boosts drive to curb debtors

Date: 29/02/1996

By Tim Jones

A REPORT published this week has given added impetus to calls for Europe-wide legislation to force large companies to pay their suppliers' bills on time.

The report from the accounting federation Grant Thornton shows that, on average, small and medium-sized enterprises (SMEs) across the EU wait for more than 60 days for invoices to be paid.

Worse still, this has become an accepted fact of life.

“It appears that payment at around 60 days has become part of the European business culture and very little progress seems to have been made since the last recession,” said Clive Bennett of Grant Thornton.

The survey also found that payments in some member states can take up to 90 days or more and that delays of as long as three years have been experienced in southern Europe.

For British Socialist MEP Lyndon Harrison, this lends support to his campaign to force the compulsory payment of punitive rates of interest by late debtors. “That has been very successful in Sweden and I would expect it to have the same beneficial effects on the rest of the European Union,” he said.

In Sweden, interest is added by right to any late payment, plus an extra 8&percent;.

The Grant Thornton report shows that the average payment period in Sweden is 30-59 days, but payment after that is almost unheard of. This compares with much longer waiting times in Spain and Greece, where 22&percent; and 31&percent; of purchasers respectively pay their suppliers after between 90 and 119 days.

The Commission acknowledges that the worst offenders are in the southern member states and the best performers are in Scandinavian countries.

Sweden, with its statutory right to interest, has the strongest record and is closely followed by Finland, which recently introduced a similar law.

But when the Commission considered the issue last year, it chose not to introduce legislation, opting instead for a recommendation setting out principles and methods for improving payments periods in accordance with national legal systems.

This called on member states to carry four main recommendations: they should promote greater transparency of the time-limits and the terms applicable between contracting parties; recognise that interest penalty systems discourage late payments; eliminate the difficulties specific to cross-border trade; and ensure discipline in payments for public procurement contracts.

Member states were required to forward reports to the Commission on the action they had taken to redress these problems by the end of December 1997. Until then, the Commission will continue to monitor developments. “We will closely monitor the situation,” said a Commission official, but he added: “We are free at any time to propose new measures, or make this recommendation into a directive.”

The Commission recommendation went to Parliament's economic and monetary affairs committee in May last year, and Harrison was made rapporteur.

His response in favour of legislation was little surprise given his long-standing links with the Forum for Private Business lobby and its five-year campaign for a statutory right to interest in the UK.

“The Commission document had good ideas, but it missed the kernel of the issue,” said Harrison, insisting there should be a directive rather than a recommendation and any legislation introduced should include a statutory right to interest.

Harrison was surprised how many of his colleagues supported the idea of a directive. His case has been helped by Parliament's public hearing on the issue in January this year, where MEPs heard complaints from SMEs in Italy and evidence from Swedish representatives extolling their system.

Harrison's draft report points out that differences between payment rules and practices in member states not only reflect cultural variety, but also the dominance of certain firms in some countries.

For him, it is a black and white issue: delayed payment is a breach of contract, is an obstacle to the proper functioning of the single market and represents a net credit transfer from the supplier to the recipient.

The MEP's draft report calls for tough guidelines from the Commission.

These should include a demand that statutory interest payments to creditors should be automatic and penal; minimum legal harmonisation should ensure simple arbitration to reach settlement without use of the courts; and easier enforcement procedures are needed to recover payments and related costs.

Moreover, SMEs should be given training in credit management as well as a holiday from Value Added Tax payments until invoices are settled, and a clear legal framework setting out the definition of terms relating to due date for payment, contract periods and overdue payment.

The report may go to the 11 March meeting of the EMAC committee but, given a shortage of parliamentary time, it is more likely to be considered at the April meeting before being voted on by the full assembly at the May plenary.

The Commission recognises the challenge that Harrison's resolution will pose. “We will see the content of the resolution and evaluate it at the time,” said one official.