Payment Terms – FAQs

How do we work together to find a better solution?

Late payments need to end. Companies and governments breaking contracts by not paying their bills on time hurts the economy. We need to find effective solutions to reduce the economic harm caused by overdue payments.

Our Q&A examines the complexity of finding the best solution to reduce economic harm.


1.Where should we start looking for better solutions to late payments?

Not by imposing strict payment caps.

The current proposal assumes that long payment terms are always abusive, and that supply chain financing is exploitative for the supplier.

For some sectors of the economy however, for example wholesale, offering supply chain finance is a core service, and an essential part of their value proposition. It enables them to provide an important source of finance for SME buyers, many of whom find accessing traditional bank financing more difficult and expensive. This means wholesalers can free up financial resources for their customers, who in turn need less money tied up in inventory. For a lot of SMEs this service is essential to have healthy cashflow and maintain an ability to invest.

Agreeing longer payment terms decreases the start-up capital needed for a new business. It also enables existing businesses to explore new lines of business more easily, by reducing the upfront costs. This creates a more level playing field, between people that need to rely on bank loans to start up a business and people that are affluent enough to finance it by themselves, or that can borrow from friends and family.

As the most recent survey on SMEs Access to Finance (SAFE) illustrates access to finance is deteriorating, not improving. The results of the 2023 survey show that nearly 8 in 10 businesses experienced increased interest rates and over a third with plans to grow, see interest rates as the most important limitation.

Imposing strict payment terms eliminates a form of financial service, that seems far off the mark of the objective of this proposal, which is to tackle breach of contract. It also seems at odds with the Commission’s own mapping of barriers to supply chain finance activities in 2020[1], which aimed to support the models and initiatives that could be scaled up and replicated.

“…a marked increase in the share of SMEs not applying to bank loans for fear of possible rejection, from 5.4 % in 2021 to 6.6 % in 2022when firms do decide to apply and attempt to negotiate the terms of their loan, their requests were rejected more often in 2022 than in 2021, with the share of SMEs that were rejected increasing from 4.2 % to 5.7 %.Commission’s report on ‘SMEs and high inflation’, page 55.

Reverting back now to the original mission of the EU late payment observatory is  a good place to start to match problems with solutions.

[1] Study on supply chain finance – Publications Office of the EU (


2.What do policymakers need to understand to create an actionable regulation?

Business relationships exist.

Negotiations between partners is day to day business, especially when actors in the chain are mutually dependent. It offers buyers access to a diverse and large pool of suppliers that in turn enables them to offer customers choice, including innovative and niche products, and the benefit of scale that can translate into more affordable prices.

Payment terms are just one element of a commercial negotiation. Each negotiation will have different trade-offs and that bigger picture may include evaluating what could be gained, the competition, what discounts might be available, the cost and terms of alternative finance, etc.

Suppliers also can thrive on there being healthy competition between them and their competitors. The advantages this offers is reflected in how they negotiate payment terms for example, to win new business or to support their books when orders are low, or they wish to enter new markets.[2]

Many businesses want to see their business relationship continue. This is the aim of mediation, and we fully support the proposed initiative of the Commission to work further on improving the uptake of this to resolve disputes. However, what outcome from mediation is possible if renegotiation of payment terms is prohibited?  Or made more difficult by automatic interest that cannot be waived?

[2] See question 16 of the replies to the public consultation


3.How many different ways can late payments be tackled?

Multiple measures are being taken across the EU to improve contractual compliance and stop late payments.

“… it would be challenging to attribute a change in payment behaviour to only one type of measure. Rather, a combination of various measures is likely to be most effective in improving payment practices, encouraging prompt payment practices and reducing late payments in the longer term.Report from the Commission’s Late Payment Observatory

There is also increasing evidence that what is currently in place is working.

According to data from both SAFE and Orbis, the prevalence of late payment practices has decreased over the yearsCommission report on SMEs and High Inflation, page 46.

Different methods also have positive results.

Example – reverse factoring: A 2020 study by the European Commission[3] has recognised that reverse factoring is seen by many governments and authorities as a solution to late payments.

The system of reverse factoring enables a buyer to have flexible payments and allows the supplier to access credit under better conditions than those that they could obtain on their own. The supplier benefits from short payment times which improves its financial situation. Reverse factoring also benefits financial institutions as they have better risk control and assume the risk of a single buyer rather than analysis the risks of several suppliers.

In Spain, thanks to reverse factoring, most providers are collecting payment in less than 7 days from acceptance of the invoice. Overall, the volume of reverse factoring is well above the volume of factoring (€93,540 million -v- €88,724 million), with an increase in reverse factoring in the last four years.

Example – no rules: The US is best in class with regard to payment terms, which is believed to be attributable to established business practices and easier access to financing (linked to their higher profitability compared to their EU equivalent).

[3] Study on supply chain finance – Publications Office of the EU (


4.Is a strict 30-day payment term the most effective method to combat late payment?

It is not clear a strict cap of 30, 60 or even 90 days will resolve the problem.

A study published by the European Commission in 2018, found that “the establishment of stricter or maximum payment terms does not necessarily translate into shorter payment duration”.[4]

Similarly, the European Commission in 2015[5] found that several countries applying stricter legislation (Denmark, Finland and Sweden) traditionally have a robust, prompt payment culture.

Stakeholders consulted as part of previous studies have noted that these countries “had only minor effects on payment behaviour and late payment practice”.

Countries such as the Netherlands only introduced strict rules on payment terms in July 2023. There has been too little time to see if this has been effective. There is also a danger that setting too restrictive payment terms could even increase the chances of default and late payments.

[4] Business-to-business transactions: a comparative analysis of legal measures vs. soft-law instruments for improving payment behaviour, Business-to-business transactions – Publications Office of the EU ( , 29

[5] VVA, Technopolis Group, EY for European Commission (2015), Ex-Post Evaluation of Late Payment Directive, European Publications Office, Ex-post evaluation of Late Payment Directive – Publications Office of the EU (, 40.


5.Will stopping large companies negotiating payment terms with smaller companies solve the problem?

Probably not.

Differentiating rules so that payment terms are only limited to 30 days for negotiations between large debtors (buyers) and smaller creditors (suppliers) ignores the direct route to market retailers and wholesalers provide for SME manufacturers. Over half of sales in French supermarkets are of products manufactured by SMEs.[6]

Introducing more administrative burden favours a shift by larger companies to reducing the number of suppliers, as managing more frequent payments, or more complicated arrangements (e.g. consignment), at scale, introduces complexity.[7] This will especially be the case if transactions between two large companies are moved out of scope of the Regulation. It also could become reflected in the price, as smaller orders may create a price premium that needs to be demanded by the supplier SME and charged to the SME buyer.  

Excluding transactions between large players assumes large manufacturers are at the end of the chain ill-fitting the reality of the value chain. For example, in electrical wholesale, the components for light fittings might be supplied by an SME to a large manufacturer, who in turn supplies to an SME wholesaler who supplies to a larger buyer. It also assumes that SMEs are always the weaker party. This might not be the case where the SME is a supplier of a niche or unique product or where availability is limited in a particular geographical location.


[7] See the experience in Estonia set out here: Feedback from: EuroCommerce (


6.Is the problem the same in all sectors, so a one-size-fits-all all solution will work? 

“…not all ecosystems experience a late payments problem to the same extent, with retail, tourism, and the proximity, social economy and civil security ecosystems exhibiting average times to payment below the thresholds established by the LPD [Late Payments Directive].Commission report on SMEs and High Inflation, page 49.

The evidence does not point that way. However, what is common is that there are numerous industrial ecosystems where the negotiation of payment terms beyond 30 days brings mutual benefits. You can find the examples of how payment terms are used in various different industrial ecosystems here. As well as on the Commission’s Have Your Say portal from different industrial ecosystems such as agri-food, culture, electronics, and mobility.


7.Strict payment terms exist in some Member States, so why would it not work in others?

The European Commission in 2015[8] found that several countries applying stricter legislation (Denmark, Finland and Sweden) traditionally have a robust, prompt payment culture. Stakeholders consulted as part of previous studies have noted that these countries “had only minor effects on payment behaviour and late payments practice”.

Currently, there is no single EU country that has a similarly strict regime that is being proposed by the Commission. While the Netherlands has a strict 30-day payment term, this applies only to transactions between large and small enterprises and has only been in place since July 2023, so there has been no time to consider whether it has been effective.

[8] VVA, Technopolis Group, EY for European Commission (2015), Ex-Post Evaluation of Late Payment Directive, European Publications Office, Ex-post evaluation of Late Payment Directive – Publications Office of the EU (, 40.


8.Can sectoral exceptions help to come to an agreement?

Yes, but this also needs to be balanced with the complexity and the effect this will have on the Single Market and the level playing field.

For example, it could reduce market entry barriers in some sectors, but this would mean that the higher upfront costs in other sectors could deter startups and growth in other sectors.

It also raises a question on how to make that decision and is it future proof? In retail and wholesale, it could be argued that all durable goods need special rules in place. With that as the starting point, how do you define or ringfence products?  

On the other hand, it would need to be balanced with the other tools that are available to a particular sector, which might help manage the cashflow or risk (e.g.  trade credit insurance, confirming, tax breaks) or the incentives available (e.g. early repayment rewards).

Also, what happens with the unexpected? No one could have predicted the pandemic, the energy crisis and the effect of other recent global conflicts. Imposing strict payment terms creates a rigid regime for the future. For construction products, you cannot predict the weather years in advance, so what happens if there is a prolonged cold spell that stops or disrupts building works? Payment would suddenly become due when work has had to stop, and interest would be automatically charged. Is this a situation of force majeure? Or just bad luck?

In all cases, it ignores the benefits from making an agreement on payment terms part of your commercial negotiation limiting the trade-offs that can be made between different risks or efficiencies.


9.Can consignment or a commercial agency solve the difficulty a 30-day strict payment cap creates?

It would solve some of the difficulty, but the regulation would first force millions of businesses to fundamentally change business models to the detriment of retailers and suppliers and customers. It would favour models such as commercial agency, currently used for specific needs, just to meet the new requirements of a standard 30-day payment term.

The effect on suppliers, particularly SME suppliers, would also need to be examined as currently consignment is only considered in the Impact Assessment as a tool to manage a mismatch in payment terms for companies that source within the EU and outside.

Replacing negotiation of payment terms with contractual arrangements is likely to:

  • Fundamentally change business models by encouraging the development of less efficient and less transparent solutions to meet the 30-day payment term.
  • Introduce more complexity.
  • Reduce transparency.
  • Make doing business riskier.
  • Make EU-based operators more vulnerable to non-EU competitors.
  • Reduce consumer choice.
  • Moving to rental, leasing or consignment means no ownership of property and no/reduced collateral to offer a bank to secure long-term finance for investment, or short-term temporary finance to fill a cashflow gap (e.g. caused by a bad month or weather delaying seasonal sales to ensure salaries are paid) or abnormal expenditure (e.g. paying a rental deposit).
  • Affect the most retail in town centres and rural areas that have lower footfall.
  • Negate the investment in Payment Observatories by making it more difficult to observe agreed payment dates and compliance.

For further explanation see: Proposal for a Regulation combating late payments – Why consignment & other contractual arrangements are not an answer


10.How can mutually beneficial arrangements be preserved?

Through freedom of contract, within parameters.

This can help debtors match payment terms to the time it takes to make sales. It will also offer incentives for early payment in good times, when sales may be more buoyant and debtors can take advantage of their negotiations for example, for discounts if they make payment early (i.e. before the contractually agreed date). Leaving open such opportunities also encourages a culture of prompt payment, where there is a reward for prompt bookkeeping  and helps maintain healthy business relationships (in good times and bad).

To be effective, the parameters set need to be accompanied with improvements on how ‘grossly unfair’ is practically applied nationally or by ensuring mutually agreeable solutions can be agreed upfront by both parties.


11.Could a longer transition period give businesses more time to find finance?

This would certainly help companies have time to negotiate with the bank or give those that need to entirely change their business model, more time to prepare, speak to lawyers to draft more complex retention of title clauses or set up commercial agency or consignment contracts.

However, it is perhaps also just delaying the inevitable. The higher consumer prices, reduction in choice, and loss of competitiveness that is explained in our summary. If SME retailers are unable to find the bank finance, they still may no longer be viable. It also offers no solution to wholesalers, whose business model is undermined.

It is also difficult to see how this will address the market entry barriers? Or ease the upfront cost that may be needed to grow a business, by exploring new business avenues? It also favours larger companies who will be more able to cope with the new situation the Regulation creates.


12. How can proper enforcement of the Regulation be ensured, without imposing the cost of creating the enforcement authorities, or administrative burden on member states?

Options that could be explored include:

  • Developing guidelines and dedicated training for those responsible for enforcing payment rules.

Existing legislation seeks to help businesses enforce their claims against payment delays. These create legal remedies that enable creditors to take appropriate legal action. Guidelines and training could help improve data collection on compliance with payment deadlines and improve behaviour. Such an approach has been taken by the Commission, for example, in relation to social affairs.

  • The EU facilitating best practice exchange between existing enforcers on payment rules

Better enforcement of existing legislation, at the national level, based on national behaviour, could be facilitated by the EU – for example, through best practice exchange at EU level and the creation of bilateral channels to facilitate direct exchange between Member States. This could help Member States learn from each other, put in place their own payment observatories, and develop tools to support a culture of prompt payment.  

  • Making better use of existing transparency on payment terms

The EU Payment Observatory monitors trends and developments on payment performance and behaviour in commercial transactions in the EU. National payment observatories exist for example in France and are being created in Spain and help raise awareness, can increase transparency on what are average payment terms that could be used for benchmarking, and support the preparation of codes of good commercial practice, awareness campaigns, and training and information.

This suggests that there is scope for sharing best practices and mutual learning. That is one of the objectives of the EU Payment Observatory, which is being developed as part of this project, and in particular the repository of documents and initiatives addressing late payments that will form part of it. Conclusions of the first thematic report of the EU Payment Observatory

  • Improve the take up and availability of alternative dispute resolution and/or reduce the cost of chasing late payment

The EU and national governments should promote the voluntary uptake of alternative dispute resolution tools, such as mediation and arbitration to solve payment disputes between companies. These tools offer speed, cost, flexibility and the preservation of relationships.

Similarly, exploring how to reduce the cost of chasing late payment, or the impact of it, could bring benefits.

In Poland, legislation was adoptedwhich introduced amendments to the Act on counteracting excessive delays in commercial transactions and the Act on public finances[9] that offers tax relief for bad debts.

[9] Ustawa z dnia 4 listopada 2022 r. o zmianie ustawy o przeciwdziałaniu nadmiernym opóźnieniom w transakcjach handlowych oraz ustawy o finansach publicznych (


13.Can increased transparency help late payments?

Yes, through payment observatories and making use of the existing transparency, for example in the standards required in the Corporate Sustainability Reporting Directive[10]. These require disclosure of the policy to prevent late payments, specifically to SMEs.

[10] The disclosure requirement G1-2 (management of relationships with suppliers) calls on the undertaking to advise  – Management of relationships with suppliers


14.What could support the take-up of alternative dispute resolution?

Acting on the lessons learned from the implementation of the Mediation Directive, options that could be explored include:

  • Awareness raising and education (e.g. campaigns, workshops, training programmes).
  • Providing incentives for taking up alternative dispute resolution (e.g. awards, subsidies).
  • Investment in increasing the availability of qualified mediators or arbitrators including through online platforms.
  • Developing public-private partnerships to improve alternative dispute resolution services.


15.What could help improve credit management?

Credit management training can help businesses acquire the knowledge and skills necessary to effectively manage credit relationships. This can include providing strategies and techniques to identify payment issues in advance and take necessary action to prevent late payment.

Options that could be explored include improving digital skills that could increase the use of electronic invoices or automatic reminders and a change in mindset by SMEs so such tools are adopted. This could include:

  • Targeting initiatives under the Digital Education and Skills Package to help match education and training with business to improve the use of existing tools that can help better manage payments, financial literacy, or more generally increase the availability of ICT specialists able to develop systems to better manage payments.
  • Work with retail and wholesale associations that could support SME buyers in digital skills that can help create a SME-friendly business environment.

71.4% of 84 respondents to the public consultation on the revision of the Late Payments Directive overwhelmingly supported improvements to digital skills this as a positive means to improve payments.

  • Improvements to communication and relationship management skills to support building up strong relationships with value chain partners.
  • Equipping businesses with knowledge and skills so they can understand and use available data to manage and understand credit risks and help improve cashflow. EuroCommerce is an associated partner to the Skills4Retail project, which will also examine the entrepreneurial skills needed for the future.
  • Matching awareness raising and education (e.g. campaigns, workshops, training programmes) with sufficient availability of programmes and trainers, and sufficient sectoral knowledge would strengthen this.
  • Providing resources (e.g. templates or checklists) to ensure that SMEs provide the right information in invoices the first-time round to reduce mistakes that might delay payment (e.g. to help ensure quantities match with prices, to ensure inclusion of full bank details).