EUROPEAN COMMISSION

Strasbourg, 12.9.2023

SWD(2023) 314 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the document

Proposal for a Regulation of the European Parliament and the Council

on combating late payments in commercial transactions

{COM(2023) 533 final} - {SEC(2023) 313 final} - {SWD(2023) 312 final} - {SWD(2023) 313 final}

Table of contents *

1Introduction

1.1Political context

1.2Legal context

1.3Implementation – state of play

2Problem definition

2.1What is the problem?

2.1.1    Public authorities often pay late    

2.1.2    Late payments affect SMEs more severely than large companies    

2.1.3    Late payment affects companies from all sectors    

2.1.4    Late payment is a worldwide problem    

2.1.5    Payment performance deteriorates in periods of adverse economic conditions: coronavirus-crisis and inflation    

2.2Consequences of late payments

2.3Problem drivers

2.3.1    Insufficient framework conditions    

2.3.2    Market failure – imbalances in bargaining power    

2.3.3    Insufficient redress mechanisms    

2.4How likely is the problem to persist?

3Why should the EU act?

3.1Legal basis

3.2Subsidiarity: necessity of EU action

3.3Subsidiarity: added value of EU action

4Objectives: What is to be achieved?

4.1General objectives

4.2Specific objectives

4.2.1    To prevent late payment from occurring    

4.2.2    To facilitate timely payment    

4.2.3    To empower SMEs and ensure more fairness in commercial transactions    

5What are the available policy options?

5.1What is the baseline from which options are assessed?

5.2Description of the policy options

5.2.1    Policy option 1: Prevent late payment from occurring    

5.2.2    Policy option 2: Facilitate timely payments    

5.2.3    Policy option 3: Strengthening redress mechanisms to ensure fair payment conditions and to empower SMEs    

5.3Form of the legal act

5.4Measures discarded at an early stage

6What are the impacts of the policy options?

6.1Economic impacts

6.1.1    Policy Option 1: Fix the framework conditions to prevent late payments    

6.1.1.1    Impacts on enterprises    

6.1.1.2    Impacts on SMEs and competitiveness    

6.1.1.3    Impact on public authorities    

6.1.2    Policy Option 2: Foster timely payments    

6.1.2.1    Impact on enterprises    

6.1.2.2    Impacts on SMEs and competitiveness    

6.1.2.3    Impacts on public authorities    

6.1.3    Policy Option 3: Empowering SMEs and ensuring more fairness in business transactions    

6.1.3.1    Impacts on enterprises    

6.1.3.2    Impact on SMEs and competitiveness    

6.1.3.3    Impacts on public authorities    

6.2Social impacts

6.3Fundamental rights

6.4Environmental impacts

7How do the options compare?

7.1Comparison of options based on costs and benefits to enterprises and public authorities

7.1.1    Policy Option 1    

7.1.2    Policy Option 2    

7.1.3    Policy Option 3    

7.2Comparison based on effectiveness, efficiency, proportionality, coherence and subsidiarity

7.2.1    Effectiveness    

7.2.2    Efficiency    

7.2.3    Proportionality    

7.2.4    Coherence    

7.2.5    Subsidiarity    

8Preferred option

8.1Impact on businesses

8.1.1    Benefits    

8.1.2    Costs    

8.2Impacts on public authorities

8.3Transversal policy option related to legal choice

8.3.1    Advantages and drawbacks of a regulation    

8.3.2    Advantages and drawbacks of a Directive    

8.3.3    Assessment of the legal choice against effectiveness, efficiency, proportionality, coherence and subsidiarity    

8.4REFIT (simplification and improved efficiency)

8.5Application of the ‘one in, one out’ approach

9How will actual impacts be monitored and evaluated?

A.Annex 1: Procedural information

B.Annex 2: Stakeholder consultation (Synopsis report)

C.Annex 3: Who is affected and how?

D.Annex 4: Analytical methods

E.Annex 5: Competitiveness check

F.Annex 6: 30 years of EU action to combat late payments in commercial transactions

G.Annex 7: EU payment observatory

H.Annex 8: Mediation in payment disputes

I.Annex 9: Best practices in enforcement of prompt payment rules

J.Annex 10: Indicative list of examples of unfair payment practices

K.Annex 11: Relevant Case Law of the ECJ

L.Annex 12: Credit management and financial literacy

M.Annex 13: Rates of statutory interests

N.Annex 14: Options discarded at an earlier stage (in depth description)

O.Annex 15: SME test

P.Annex 16: Results of the SME panel consultation on the revision of the Late Payment Directive

Q.Annex 17: Mapping late payment in the EU

R.Annex 18: Prompt payment in some EU trading partners

S.Annex 19: Problem definition and the problem tree

T.Annex 20: Consequences of late payment

U.Annex 21: List of bilateral meetings (targeted consultations)

V.Annex 22: Digital tools

W.Annex 23: Supporting information

X.Annex 24: Monitoring and evaluation of impacts

Y.Annex 25: Overview of benefits and costs for business and for public authorities

Glossary of acronyms

Glossary of terms 

A note on terminology:

·Payment term is the time period set out in the contract and agreed by the two parties. It corresponds to the trade credit granted by the creditor to the debtor to pay off the amount due.

·Payment delay is the period of time starting after the due date according to the contract (payment term), until the payment is received by the creditor.

·Payment duration (or period) is the total period of time required for the payment to reach the creditor, i.e. from the beginning of the payment term until the payment is received (total sum of payment term and potential delay). The figure below visualises the difference between these concepts:

Figure 1 : Payment term, payment delay, payment duration

·Agreed term – payment term agreed in the contract,

·Arbitration service

·Commercial transaction serves to transmit economic values such as materials, products, and services from those who want to exchange them for another value, usually money, to those who need them and are willing to pay a countervalue 1 . The LPD defines ‘commercial transactions’ as transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration.

·Compensation refers to both compensation flat fee and compensation interest together

·Contract, invoice

·Days sales outstanding (DSO) is the average number of days it takes a company to receive payment and is calculated as follows: DSO= (average amount of the account receivable/revenue) * 365 days.

·Interest for late payment - means statutory interest for late payment or interest at a rate agreed upon between undertakings, subject to Article 7 of the LPD

·Mediation service

·Legal term – payment term stemming from provisions of the law, e.g. the LPD

·Statutory interest for late payment – means simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points (LPD, Art 2 par. 6)

·Terms: firm, company, business, enterprise, undertaking are used interchangeably

·Verification procedure – a procedure by which the conformity of the goods or services with the contract is to be ascertained

Annexes

This report includes mandatory annexes (annexes 1-5), standard annexes (SME test, digital by default) and others in support of the main text.

1Introduction 

1.1Political context

1.Reliable streams of payments are necessary for SMEs to operate, grow and invest. Prompt payments protect small business’ liquidity, productivity, and solvency. They strengthen the competitiveness of the whole EU economy. They support companies in their transition towards more sustainable and digital models and strengthens their resilience. Late payment harms the functioning of the internal market, adversely affects employment and poses risks to the growth prospects of the EU. A culture of late payment undermines the freedom of economic initiative, enshrined in the EU Charter of Fundamental Rights (Article 16).

2.Before the coronavirus pandemic, only 40% of payments 2 in commercial transactions were made within the agreed contractual deadline. Economic shocks and factors increasing uncertainty cause timeliness of payments to deteriorate. In first half of 2022, six out of ten companies expected the risk of late payments to grow in the short term due to inflation 3 . High interest rates, which are an indirect effect of inflation, support late payment 4 . Predictability of payments is important for all businesses. SMEs have more limited access to liquidity than public authorities or large businesses, which makes getting paid on time vital. Late payment disrupts their daily operations, negatively affects their employment and investment decisions, and undermines their position in supply chains.

3.The Commission recognises a broad consensus that the European model for inclusive economic growth, based on sustainable competitiveness, economic security, trade and open strategic autonomy and fair competition, is a source of prosperity 5 . In 2019, the European Parliament 6 identified several shortcomings of the Late Payment Directive (LPD), e.g. the lack of an absolute maximum payment term in B2B transactions, insufficient remedial measures, and insufficient enforcement mechanisms. The SME Strategy for a sustainable and digital Europe, calls for ensuring a ‘late-payment-free’ environment for SMEs and strengthening the enforcement of the LPD. In 2021, the Fit for Future platform highlighted critical issues in the implementation of the LPD in the F4F Opinion 2021. These findings mirror the conclusions of previous assessments carried out by the European Commission 7 - see Annex 6 .

4.President von der Leyen announced a revision of the LPD in the 2022 SOTEU speech ‘because it is simply not fair that 1 in 4 bankruptcies are due to invoices not being paid on time. For millions of family businesses, [the revision] will be a lifeline in troubled waters’. The President announced an SME relief package as well. The revision of the LPD has been included in the CWP for 2023. 

1.2Legal context

5.The LPD was adopted in 2011 to address the shortcomings of Directive 2000/35/EC (see Annex 6 ). It introduced the following measures:

1)Obligations for payments G2B: 

a)public authorities have to pay for goods and services within 30 days,

b)public entities operating in the market and carrying out economic activities, and public authorities in the healthcare can set payment terms not exceeding 60 days. 

2)Obligations for payments B2B:

a)enterprises have to pay their invoices within 30 days. This term can be extended to 60 days if expressly agreed and not “grossly unfair” to the creditor.

3)Both in B2B and G2B transactions, where a contract foresees a verification procedure for the acceptance of the goods or the services, it should not exceed 30 days from the date of the reception of the goods or services. This term can be extended (indefinitely) as long as expressly agreed in writing, and not “grossly unfair” for the creditor. Enterprises are entitled to claim interest for late payment and to obtain a minimum fixed amount of EUR 40 as a compensation for recovery costs. They can claim reasonable compensation for all remaining recovery costs.

4)The minimum interest rate for late payment is 8 percentage points above the ECB’s reference. Public authorities are not allowed to fix a lower interest rate for late payment. Businesses can fix a lower rate if it is expressly agreed in the contract and not “grossly unfair” to the creditor.

6.The LPD (recital 4) recalls all the relevant regulations to facilitate judicial claims of unpaid credits cross-border 8 .

7.The LPD is closely linked to the Unfair Trading Practices in the agro-food supply chain (UTP) Directive. The legal relationship between the two legal texts is explained in Recitals (17) and (18) and article 3(1) of the UTP Directive. Notably, the late payment prohibition in the UTP Directive constitutes a lex specialis for the agricultural and food sector in relation to the LPD. The prohibition of late payments laid down in the UTP are without prejudice to the late payments and remedies rules in the LPD. The late payments in the LPD are also without prejudice to the specific rules applicable in the agri-food sector to value-sharing agreements, payments in the context of the school scheme and to certain payments in the must and wine sectors. 

8.The Corporate Sustainability Reporting Directive (CSRD) requires large and listed companies to report according to European Sustainability Reporting Standards (ESRS) to be adopted by the Commission. It specifies that ESRS should define e.g. the information that companies have to report about payment practices. The recitals of the CSRD indicate that such information should include the date or period for payment, and the rate of interest for late payment or the compensation for recovery costs. 

9.Some of the public procurement directives provide for a direct payment to subcontractors. Art 71(3) of the directive 24/2014/EU provides for the possibility for the Member States to lay down provisions on direct payments to the subcontractor for services, supplies or works provided to the economic operator to whom the public contract has been awarded (the main contractor) ‘where the nature of the contract so allows’.

1.3Implementation – state of play

10.The LPD entered into force on 16 March 2011. All Member States have transposed the Directive. The last notification of transposing measures arrived in July 2014. 

11.In April 2023, there were 8 infringement procedures pending: 6 for bad application and 2 for non-conformity of legislation. Many of the bad application cases involve long payment delays to suppliers by the public authorities, particularly in the health sector. Others concern not respecting the interest rates and compensation for recovery costs.

12.The case law of the Court of Justice concerning the LPD, either exclusively or jointly with Directive 2000/35/EC, includes several preliminary rulings and one judgement in the framework of an ongoing infringement procedure (see Annex 11 ).

13.The LPD’s implementation was supported by an awareness raising campaign and an expert group (see glossary), which informs every six months about the rate applicable to the statutory interest for late payments in the Member States (see Annex 13 ).

14.The LPD allows Member States to introduce provisions that are more favourable to the creditor than those necessary to comply with the Directive. Several Member States 9 resorted to this possibility and enacted stricter rules (see examples in Annex 9 ).

15.While the Commission did not carry out an evaluation before this impact assessment, there is extensive evidence collected throughout the years, which constitutes a robust basis to identify the problems and the possible options to address them. Namely, the LPD was evaluated in 2015 10 and several of its aspects were assessed in 2016 11 , 2017 12 , 2018 13 , 2019 14 , 2021 15 and 2022 16 - see Annex 6 .

16.The initiative is expected to contribute to Sustainable Development Goals: SDG 8, ‘decent work and economic growth’, SDG 3, ‘Ensure healthy lives and promote well-being for all at all ages’, SDG 4, ‘Quality education’ and SDG 9, ‘Industry, Innovation and Infrastructure’.

2Problem definition

2.1What is the problem?

17.Commercial transactions between undertakings consist in supplying goods or providing services in exchange of monetary payments. Every year, between 18 and 40 billion invoices are exchanged in the EU, more than 500 every second 18 .

18.Late payments are those payments that are not made within the agreed or legal term. In addition to late payments, there are also long payment terms set in contracts. The longer the period between the delivery of goods or services and the payment, the less likely the creditors are to consider the period as fair, as regards both late and long payment terms.

19.Late payments represent a problem for the European economy because of their negative economic and social consequences. They reduce competitiveness, increase uncertainty, reduce SME participation in public procurement and harm the well-being of entrepreneurs. Late payments undermine productivity 19 growth and fairness, both of which are key factors on which the EU is building its sustainable competitiveness 20 . In any affected company they increase working capital needs, drive up hassle costs and increase financing costs. They affect companies from all sectors 21 , all EU Member States 22 and they disproportionately severely affect SMEs 23 . As a result, they are present in cross-border transactions, undermining the development of the single market and internationalisation of EU companies. In 2022, average EU payment term equalled 37 days and average EU actual payment time stood at 50 days 24 . See  Annex 17 .

Figure 2: Late payment problem - context, drivers, and consequences

21.Since then, payment performance has not returned to its pre-crisis levels. In 2022, payment duration was higher than in 2014.

2.1.1Public authorities often pay late

22.Public authorities should lead by example and pay their suppliers on time. The LPD recalls a “special responsibility” of public authorities to facilitate SME access to finance and develop a legal and business environment supportive of timely payments in commercial transactions 29 . The importance of public authorities paying on time is driven by the fact that every year, over 250 000 public authorities in the EU spend around 14% of GDP (around EUR 2 trillion per year) on the purchase of services, works and supplies. And yet, the payment performance of public authorities can stand significantly below the requirements set by the LPD.

23.In Italy, the average payment period of the “worst” public payers exceeds 400 days 30 . In Spain, local communities often pay late: in October 2022, their average payment period stood at 53 days, and there were cases of payment periods exceeding 300 days 31 .

24.In general, although late payments by public authorities have gone down significantly since the introduction of the LPD (from 27.8 days in 2011 to 16.8 days in 2022) (see figure 3), they remain a significant problem. On average, payments by public authorities are still slightly more delayed than payments in business-to-business transactions (16.8 days for G2B vs. 13.3 days for B2B).

25.Although public authorities are already obliged to pay within 30 days since the introduction of the LPD, numerous attempts remain to circumvent the obligations in place. For example, common practices include long verification procedures before starting the clock on 30 days requiring a waiver of the entitlement to interest and compensation or bans on execution of executive orders of payment issued by a Court.

2.1.2Late payments affect SMEs more severely than large companies

26.Late payments are an issue for companies of all sizes 32 . While some studies 33  point to comparable levels of payment terms and delays in SMEs and large companies, other studies show that payment behaviour of large companies differs from the one of smaller enterprises. The percentage of punctual payers decreases as business size rises 34 . A 2021 study demonstrates that microenterprises, and in some markets small companies, showed the best payment behaviour ( Figure 15 in Annex 17 ).

27.The larger the company is, the worse payment performance it is likely to exhibit 35   36 .

28.Large companies tend to hoard liquidity and not pass it on to the supply chain. In Spain, it has been reported that the massive injection of liquidity completed under coronavirus-crisis support led to a situation where large companies doubled their pre-crisis liquidity levels and did not pass it on to SMEs. At the same time, they slowed down their payments, leaving EUR 82 billion of invoices unpaid outside the legal payment term 37 . 

29.Medium and large companies are much more effective in managing the cost of overdue payments than small and microenterprises are. Micro companies are most affected by the problem of delays with 8% of their total cost resulting from late payment. The corresponding percentages in small, medium and large companies amount to respectively 5.5%, 3.9% and 3.3% of total costs 38 .

2.1.3Late payment affects companies from all sectors 

30.Late payments affect all sectors. Most business organisations responding to the PC are either openly against sectoral exceptions or do not mention such a consideration in their submissions. Construction sector business associations call for reducing tolerance for long payment terms and late payment but are not asking for a sectoral approach. Some stakeholders representing wholesale, retail and textile industries have called for sectoral approaches. The evidence from the PC does not show unanimity among stakeholders from these sectors and their diverging views are sometimes starkly contradictory (e.g. with regards to large retailers). Findings from the SME panel do not confirm the need for a sectoral approach. These aspects are analysed in sections 6.1.1.1.1 and 6.1.1.1.2. See also  Figure 15  in Annex 17 .

31.Construction sector stakeholders report late payments as particularly acute. Practices to artificially delay payment in construction sector include disputes on the quality of the work or materials, extending verification procedures, or making administrative payment processes excessively complex 39 . 49% of SMEs in the construction sector reported late payment problems 40 . The percentage share of payments made on time in this sector is not satisfactory anywhere in the EU, except for Denmark, where 91.9% payments were made on time 41 . The percentage share of payments made by the agreed deadline in 2022 ranged from 15% in Bulgaria to 68% in Germany 42 . 

2.1.4Late payment is a worldwide problem

32.Late payments are a worldwide problem. In 2017, 10% of the invoices issued in commercial transactions around the world were estimated not to be paid on time or to be written-off as bad debt 43 , costing the global economy $1 trillion every year 44 .

33.Many EU trading partners address late payment problems with behavioural or disclosure legislation (see Annex 18 ). In B2B, prompt payment rules are found in Japan, India and Türkiye. The size of at least one of the two parties in the contract is used to define payment terms conditions (from 30 days plus verification from the date of invoice to 60 days including verification from delivery date; Japan and New Zealand have rules on unfair payment practices). Reporting obligations tend to focus on where late payment risks are higher. UK, USA, Australia have also promoted voluntary codes in B2B; their effectiveness remains to be proven. Specific prompt payment B2B legislation exists for the construction and agriculture sector. In G2B, prompt payment rules set 30 or fewer days as payment terms, with shorter deadlines for payment to small companies in some countries. Construction is the most regulated sector, both in B2B and G2B, with strict timing of payments also down the supply chain. Most prompt payment rules include automatic application of interest, and compensation never appears.

34.In summary, the information on payment practice laws in non-EU countries is uneven. Several countries are in the process of considering or advancing late payment legislation. This explains why there is little in terms of evaluation (mainly from UK, US/Canada and an evaluation in Australia is ongoing). The reviews screened point to the fact that there is no single policy measure that would guarantee successful reduction in payment delays, e.g. policy measures put in place in the US lacked an effective dispute resolution mechanism, which significantly reduced their overall effectiveness.

2.1.5Payment performance deteriorates in periods of adverse economic conditions: coronavirus-crisis and inflation 

35.General payment discipline deteriorates in times of economic difficulties 45 (see section 2.1). In April 2020, the French “Médiateur des Entreprises” informed that the number of complaints about late payments they received in March 2020 increased tenfold compared to normal situation and that late payment was the first reason for the complaints 46 . In Italy, every day of delayed payment causes the need for working capital of small businesses to increase by up to 15% or EUR 19 billion 47 . In Spain, in the first 6 months of 2021, 70% of invoices were paid late 48 . See Figure 3  in section 2.3 for information on cyclicality.

36.Inflation reduces the real value of debt 49 and paying late means paying less. While inflation itself affects late payments only to a limited extent, it may have indirect effects as central banks take action to curb inflation by raising interest rates, which may negatively affect economic growth, firms’ liquidity as well as their financing options, thus affecting late payments, too 50 . Inflation increases business risks, making it more difficult to predict input factor prices. In a high-inflation environment, enterprises may find it difficult to pay their bills when prices go sharply up. In times of high-interest rates, paying late becomes very attractive as long as it does not entail paying interest. 

2.2Consequences of late payments 

37.Late payment creates a domino effect that leads to more late payment. Consequences of late payment spread along and across supply chains, industrial ecosystems, and the entire economy. Consequences of late payment are discussed in depth in Annex 20 .

38.Positive consequences of late payment accrue to debtors. They include stronger cash flow, and they allow the debtor to avoid going through the process of applying for financing.

39.Negative consequences of late payment accrue to both creditors and debtors. Late payment:

1)reduces competitiveness, 

a)increases hassle costs of chasing debtors for payment,

b)increases cost of financing, 

2)increases uncertainty and the risk of running a business,

a)reduces investment capacity,

b)increases liquidity risk and the risk of bankruptcy,

c)reduces trust and confidence in the market,

d)results in jobs lost,

3)reduces participation of SMEs in public procurement,

4)produces negative societal outcomes.

2.3Problem drivers

40.Parties of commercial transactions seek to maximise their financial liquidity at minimum cost and, while trade credit is a generally accepted practice, there is no universal agreement about which payment terms are considered fair and which are not. 

Figure 4: High cash reserves ratio represents a stronger motivational factor for companies managing their probability of default than reducing late payment 51

Late payment is caused by horizontal drivers common to all sectors and applicable in commercial transactions.

In LPD’s context, the interpretation and application of key provisions on payment terms are delegated to insufficiently defined concepts (e.g. ‘grossly unfair’); enforcement of the law is insufficient because it can only be obtained through long and costly court procedures, and it is easier for many debtors to obtain finance through late payment rather than bank credit.

Figure 4 shows that high cash reserves ratio reduces a company’s probability of default much more than the increase caused by the existence of late payment.

41.Late payment happens in the context of ‘borrowing liquidity’ – accomplished at the expense of the business partner 52 , either by obtaining the creditor’s validation by exploiting differences in bargaining power, or by unilaterally, outright unlawfully paying late (breach of contract), with no fear for consequences. Asking for long or extended payment terms is a latent demand for cash. These sources of finance are substitutes for normal trade credit and bank loans or overdrafts. But they are not free. The implicit interest rate in a trade credit agreement is usually very high as compared with the rates on bank credit 53 . Cost savings debtors obtain through late payment are illusionary because debtors effectively use and pay for their creditors’ working capital funding. We are assuming that a creditor needs a working capital credit line to fund trade credit to customers. We are assuming that creditor’s weaker bargaining power than the debtor’s means that creditor’s business risk is higher than debtor’s. Therefore, interest rate banks require from the creditor is higher than they require from the debtor. Late payment allows therefore the debtor to limit their collaboration with their bank, avoid applying for a loan and strengthen their cash position, but at a higher price. Provision of working capital financing can be considered as a standalone economic activity, to be declared under NACE section K. 

42.Departing from this context in which the debtor is seeking to strengthen their cash position and avoid talking to their bank, drivers for late payment can be found on three fronts: insufficient preventive measures, market failure that results from imbalances in bargaining power, which put in question the integrity of a commercial transaction, and finally, insufficient redress mechanisms.

43.Next to these, there are drivers that cannot be addressed under this initiative, e.g. corrective measures addressing inefficiencies in administrative processes for payment fall within the remit of the Member States.

2.3.1Insufficient framework conditions

44.The scene for potential late payment is often set before the commercial transaction is concluded. Several factors make it possible. The law and business practices, which have so far relied on the principle of freedom of contract, have created a grey zone for assessing the level of fairness in setting payment terms and agreeing payment periods.

45.The LPD fixes a maximum payment term in B2B transactions at 30 days but gives a wide margin of discretion to set longer terms by contract. Therefore, companies with bargaining power impose excessively long payment terms on their smaller suppliers. Lack of legally defined maximum payment term for B2B transactions increases the likelihood a company will have to deal with late payment.

46.The LPD insufficiently clarifies how to handle the duration of verification procedures 54 , very common in public procurement. In practice, payment terms are lengthened by delaying the moment a creditor is allowed to send the invoice.

47.While trade credit is universally used and short payment periods are generally considered fair, this is not always the case for long payment periods or payment periods exceeding agreed payment terms 55 . This lack of clarity on which payment terms are fair leaves it to the party with stronger bargaining power to win the battle for liquidity and determine a transaction’s payment term. Based on this mechanism some sellers accept conditions with which they do not feel comfortable or consider unfair. Imbalance of power is a very important driver for B2B transactions 56 (see Figure 14 on p. 187). In 2022, 61% of companies reported that they had been asked for longer payment terms than they were comfortable with 57 , and this includes both B2B and G2B transactions. EU companies consider that the main causes for customers to pay late 58 include the fact that debtors are in financial difficulties, intentional late payment, and administrative inefficiency (reported by respectively 54%, 50% and 48% of companies).

48.SMEs appear to be under-utilising tools such as credit reference information 59 to obtain information on payment track-record of their prospective customers. It is therefore difficult for them to estimate the risk that a potential client could pose for their business. Companies need a better understanding of their exposure, vulnerabilities, and potential losses to inform resilience strategies. SMEs need better financial management skills which would help them to reduce the risk of default, shorten the average collection period, and support an optimal cash flow thanks to effective credit management. 70% of businesses indicated that lack of skills and in-house know-how are preventing them from improving the management of payment delays 60 . Bad invoice management disproportionately affects SMEs because they either cannot afford or rely less than large companies on state-of-the-art solutions, which can immediately reduce the risk of payment delays or accelerate payment (e.g. digital invoice management tools or e-invoicing). Many agreements are still concluded verbally, e.g. in the agriculture sector. These can lead to misunderstandings, cause difficulties with proving the agreed conditions, and prevent the use of remedial actions.

2.3.2Market failure – imbalances in bargaining power 

49.The incidence of late payments in commercial transactions depends on the level of competition in a market and the bargaining power of companies. Some businesses accept late payment because they can afford it, can manage it and see it as a way to gain new customers. Insufficient bargaining power may influence creditor to accept long or late payment for fear of harming commercial relationships with stronger clients. Such fear is an important reason for not claiming interest or compensation for late payment 61 . Strong bargaining power may encourage debtors to seek or impose an extension of the payment period, a practice called ‘supply-chain bullying’ 62 . 

50.Many payment terms agreed in this way are long. While they are considered lawful in light of the freedom of contract principle, on which the LPD is based, they are often considered unfair by the creditors. In 2021, 49% of EU businesses declared having accepted longer payment terms that they were comfortable with, in order not to damage client relationship 63 (see  Annex 17 for more details). This points to the fact that freedom of contract, on which the LPD has been based, and fairness in setting payment terms do not always go together. This proposal is seeking to address the need for more fairness in B2B transactions. In that context, some Member States, e.g. the Netherlands, Sweden, have put in place laws to address late payment. These provisions are stricter than the LPD – see Annex 23 .

51.The LPD does not sufficiently well protect creditors. The provisions regarding the payment of interest and a flat fee compensation for costs, in case of late payment required a court ruling to bring the necessary clarity 64 . ‘Entitlement’ to the interest and compensation is a heavily underused right. Some debtors specifically circumvent these provisions by using such contractual clauses that make repayment of debt conditional on creditors’ agreement to give up their rights to interests and compensation.

52.Enforcement is not lean enough, which encourages many debtors to take chances of not being sanctioned for paying late, also in light of the time and money needed to complete legal procedures. The consequences of late payment are not imminent or unavoidable.

53.The rules that support the monitoring of compliance are not strong enough. There is little information on average payment terms, average payment periods or payment performance.

54.The LPD is not sufficiently well linked with other policies related to public spending (e.g. public procurement, regional and structural funds), which prevents public (and EU) money from supporting fair payment. The LPD lacks rules and tools to make prompt payments the norm and to marginalise bad payment behaviour. 

55.Finally, public authorities do not lead by example. Commercial transactions with public bodies suffer from imbalances in bargaining power. Public authorities often do not pay on time, try to circumvent their legal obligations regarding interest and compensation, and do not set the example for B2B transactions.

2.3.3Insufficient redress mechanisms

56.Many, especially small, companies are not aware of the provisions of the LPD, or how these are to be applied in practice. They also lack the ability to self-empower themselves and assert their rights to timely payments. The LPD does not provide small creditors with adequate tools to take action against their debtors. Legal action is the only measure envisaged in the LPD, and it is usually disproportionately costly, disproportionately time-consuming, and likely to damage business relations between the parties.

57.Obtaining satisfactory result through taking matters to court is uncertain because of weaknesses of the LPD. The lack of clear definition of ‘unfair’ practices or clauses makes it difficult for companies to assess their chances of winning in court. Several provisions of the LPD build on the concept of ‘grossly unfair’, an undefined concept, which makes it difficult for a creditor to prove a specific contractual clause or practice as unlawful. Access to mediation is insufficient. There exist other practices, which result in circumventing the LPD’s obligations, e.g. practices banning assignments of receivables, which hamper factoring 65 (see Annex 10 ). These practices are not defined as unfair in the LPD which makes it very difficult for SMEs not to accept them. 

2.4How likely is the problem to persist?

58.If no additional EU action is taken, the identified issues are likely to persist (based on the input received by the Commission from stakeholders and desk research).

59.Between years 2014 and 2022, the drop recorded after the transposition of the LPD did not bring payment times below 30 days. The spike following the coronavirus pandemic erased the gains made before 2020. The difficult economic context, high inflation and higher interest rates are likely to support the prevalence of late payments. The problem is highly unlikely to go away when the situation will have stabilised. Payment delays persist even during the absence of economic crises. 

60.Late payment remains attractive because for a debtor it represents the quickest, easiest and paperless way to obtain financing. The bargaining power, not sufficiently harnessed by the provisions of the LPD, and the lack of clear guidance on which payment terms are fair will allow parties to continue paying as they see fit.

61.So far, the Commission’s enforcement action has been limited to infringement procedures against Member States, reporting on payment performance in the European Semester and making country specific recommendations. Several recent legal initiatives and ongoing projects may affect the issue of commercial payments. All of these are assessed under the baseline.

62.The current situation allows for different provisions in different Member States and therefore a risk of market fragmentation. For example, in some Member States the compensation interest stops accruing once its amount is equal to the amount of the underlying overdue payment. Furthermore, the LPD was not correctly transposed in several Member States, with currently still 2 active infringement procedures, due to non-conformity of legislation. This also makes it difficult for courts to deliver consistent judgments and for companies to evaluate their chances of success in the court. This is further aggravated in cross-border situations, when dealing with justice systems in other EU Member State(s) becomes necessary.

63.Late payers who start paying on time would need to seek working capital financing. This would entail a certain adjustment process of obtaining a credit loan and the payment of the interest. The net financing cost for the debtor would likely go down 66 , but the cost of dealing with the bank would increase.

64.No megatrends apply to the late payment problem tackled by this initiative 67 . The initiative will support developing a future-proof and agile EU regulatory framework, with the single market at its heart, which will be conducive to sustainable business models and consumption patterns and EU competitiveness, as identified in the strategic foresight report among areas of action for a successful twinning 68 .

3Why should the EU act? 

3.1Legal basis

65.This initiative aims to enhance competitiveness in the single market by reinforcing the provisions to prevent late payments, thereby creating a culture of prompt payment.

66.Article 114 of the Treaty on the Functioning of the EU (TFEU) is the appropriate legal basis for this initiative to achieve its objectives. This article is the appropriate legal basis for measures aimed at achieving the objectives set out in Article 26 TFEU (harmonising national provisions).

67.The overall objective of this legislative proposal is to ensure the smooth functioning of the EU single market by combating the unlawful misappropriation of liquidity in the EU market. There is a strong value added of action at EU level because the problems that this proposal tackles affect cross-border transactions and are not limited to the territory of a single Member State. Member States on their own could not bring about a consistent improvement to those problems. The revision also aims at boosting sustainable competitiveness, increasing both fairness and liquidity in the single market, enabling the digital and twin transition while reducing the administrative burden of chasing debtors.

68.Coordinated action is required to ensure that all Member States have the minimum rules in place to prevent late payments, have the right enforcement and deterrent measures to combat late payments and the adequate means of redress. In this context, the targeted EU intervention through this proposal complies with the principle of subsidiarity. 

69.The LPD is a recast of the first Late Payment Directive (Directive 2000/35/EC), based on Article 95 TEC. The LPD and its revision fall within the joint remit (‘shared competence’) of the EU and its member governments.

3.2Subsidiarity: necessity of EU action

70.The ‘history’ behind the adoption of the current and previous Directive (see Annex 6 ) illustrates that the need of EU action against late payments has been evident since 1995.

71.The problem of late payments is widespread across the EU and affects all Member States. The causes of the problem are common in all EU Member States. Facilitating prompt payment will require all Member States to make rules stricter in a coordinated way. Implementing 27 national solutions would likely result in a lack of uniform rules, fragmentation of the single market and higher cost for companies trading across borders. The EU dimension is justified by the fact that this action affects all commercial transactions in public procurement and between businesses, regardless of their size. It is the very essence of the single market. This action concerns the revision of existing EU legislation in order to strengthen its provisions; therefore, it can be done only at EU level.

72.Some EU countries have introduced national rules that are more stringent than the LPD and grant better protection to SMEs – for example capping payment terms in B2B transactions at 30 days when the creditor is an SME or setting up enforcement bodies. At the same time, some national legislations have introduced a ban on assigning receivables, thereby prohibiting the restriction on the parties’ ability to assign or transfer rights that helps getting finance. To avoid fragmentation of the single market, it is necessary to ensure homogenous implementation and enforcement of the rules.

73.Similarly, co-ordinated action is required to tackle the asymmetry of power and asymmetry of information, as well as means of redress across Member States.

74.Therefore, Member States acting individually could not satisfactorily remove the barriers to ensure prompt payment across the EU. A coherent legal framework for payment terms, payments of interest and compensation and enforcement, can only be achieved at EU level.

3.3Subsidiarity: added value of EU action

75.Value added of EU action for this initiative is strong because it seeks to address a widespread, EU-wide problem, which affects not only intra-Member State transactions, but also cross-border transactions in the single market. Payments allow the single market to function. Late payment may affect any commercial transaction in the EU. This initiative concerns the revision of an already exiting EU legislation (Directive 2011/7/EU) therefore, it can be done only at EU level. Implementing 27 solutions to lay down rules on national level would risk fragmenting the single market and bring additional familiarisation and compliance costs for companies trading across borders in the EU.

76.A coordinated action at EU level including Member States is required to:

1)define provisions on interest and compensation fees (articles 3,4, and 6) so that they can be transposed in a uniform manner into national legislations,

2)establish clearer payment terms for B2B, as well as enforcement and monitoring provisions, that apply cross border,

3)ensure that there are synergies with the public procurement framework, and especially taking into account that the National Recovery and Resilience Plans in the Member States are implemented primarily through public procurement.

77.In line with the principle of proportionality, the planned initiative will not go beyond what is necessary to achieve its objectives by revising the current rules applicable to all commercial transactions in public procurement and between businesses, which could not be achieved by Member States on their own (see in particular section 5.4 and Annex 14 ).

4Objectives: What is to be achieved? 

78.The initiative is expected to contribute to progress towards Sustainable Development Goals no. 8: Decent work and economic growth, no. 3: Ensure healthy lives and promote well-being for all at all ages, no. 4: Quality education and no. 9: Industry, innovation and infrastructure. Further details are in Annex 3 .

4.1General objectives 

79.The general objective is to ensure the proper functioning of the internal market and competitiveness for EU companies by laying down rules to grant companies appropriate conditions to receive fair and timely payment for their goods or services. This initiative aims to contribute to strengthening competitiveness and growth of companies active in the internal market by improving the payment discipline of all concerned actors (SMEs, large businesses and public authorities) and protecting SMEs against the negative effects of payment delays in commercial transactions.

80.The need to ensure that the internal market can work for the sustainable development of Europe, based on balanced economic growth, a highly competitive social market economy, and that it can promote economic and social cohesion, follows from Article 3 of the TEU.

Figure 5: Late payment problem - general and specific objectives

4.2Specific objectives 

81.The specific objectives are:

4.2.1To prevent late payment from occurring

82.The first specific objective of the intervention would be to provide a clear set of measures to prevent late payment and make companies more aware of their rights and obligations, notably by fixing maximum payment terms or mastering companies’ proficiency in credit management and digital literacy. The specific objective aims to facilitate business-to-business relations between companies especially in the early (mainly pre-contractual) stage of their business relationship and to allow them:

1)to plan and dedicate their resources to their core activities, and

2)to fully understand the benefits offered by streamlined and timely cash flows, that better correspond to the flow of physical goods or delivered services.

83.The initiative should lead to creating a more predictable business environment for those enterprises which use trade credit to sell their products or services.

4.2.2To facilitate timely payment

84.The second specific objective refers to the contractual stage of a business relationship. It aims to make it easier for companies to receive due payments on time, to help them exercise their right to systematically receive interest and the flat fee compensation, and to ensure better enforcement of the rules by creating appropriate mechanisms for enforcement. These mechanisms should ensure the necessary speed, independence and affordability to overcome the observed gap in the application of LPD’s provisions. A stronger commitment from the public authorities to pay on time and to lead by example is also necessary, especially in public procurement context.

4.2.3To empower SMEs and ensure more fairness in commercial transactions

85.The third specific objective is to empower SMEs and ensure more fairness in commercial transactions, to make it easier for companies to assert their right to receive timely payments. This objective seeks to respond to the need to request Member States to specifically address the question of unfair contractual terms and practices through their applicable national law, address insufficient access to mediation, or create better framework for redress possibilities. The objective seeks improvement in companies’ situation without creating unnecessary or disproportionate burdens and facilitate access to effective redress, where currently a judicial procedure represents the only available option.

86.These three objectives address the problem drivers identified in section 2.3. Each specific objective corresponds to an individual driver.

5What are the available policy options? 

5.1What is the baseline from which options are assessed?

87.As set out in section 2.4, the initiative is not linked to any of the megatrends but would support the area of action for a successful twinning related to developing an EU regulatory framework with the single market at its heart.

88.More than 70% of businesses never claim interests or compensation when paid late. In the absence of EU action with respect to the LPD, businesses are likely to continue experiencing payment delays. The identified weaknesses of the LPD: the absence of a cap on payment terms in B2B transactions, unclear provisions regarding unfair payment practices, the payment of interest and compensation and the absence of means for monitoring and enforcement, would continue to negatively affect the payment performance of companies. The fact that the current provisions do not sufficiently empower the creditor to claim interests and compensations has led to a proliferation of national schemes, business practices or contractual clauses whereby debtors make repayment of their debt conditional on creditors’ giving up their rights to interests and compensation. Should the LPD’s sanctioning powers remain unchanged, its creditor protection provisions will continue to be circumvented.

89.Companies do not claim the EUR 40 flat fee compensation for recovery costs. The amount of the fee no longer covers the hassle cost of chasing debtors.

90.The Commission would continue to enforce the LPD mainly through the European Semester’s country specific recommendations or through infringement procedures for bad application or incorrect transposition of the LPD. Both are lenghty procedures unlikely to have the desired effects. In that context, a number of Member States have been requested to provide regular reporting on their payment behaviour.

91.Since the problem is not new, the EU initiatives already put in place to tackle the problem of late payment form part of the baseline. Examples are set out below.

92.The UTP directive (article 1) addresses the capping of B2B payment terms and clarifies what are practices that ‘grossly deviate from good commercial conduct’, which can be used as a proxy for understanding what ‘grossly unfair’ means. EU countries were required to transpose the directive into national law by 1 May 2021 and apply it six months after. It aims to better protect farmers and small and medium sized suppliers in the agro-food sector. It provides for mandatory rules that outlaw certain unfair trading practices. It bans 10 unfair trading practices and lists further 6 unfair trading practices, which are only allowed if the supplier and the buyer agree on them beforehand in a clear and unambigious manner. Such practices include unfair payment terms, and provide for enforcement and fines.

93.Several court rulings linked to the LPD have given guidance on the interpretation of the interest and compensation claims, (see section 1.3 and Annex 11 ). It is preferable to reflect them in the wording of the LPD to make it easier for companies to secure their rights.

94.A pilot project for a temporary EU Observatory for late payments was launched in 2023 to support the monitoring of compliance with payment terms and transparency on payment performance, such as collection of statistics on average payment periods or average payment terms in B2B and G2B transactions (see Annex 7 ). The project relies on voluntary data provision and builds on national and sectoral databases, leading to issues of coherence and comparability of data. The European construction sector observatory (ECSO) 69  regularly analyses and comparatively assesses payment performance in the construction sector in 27 EU countries and the UK. 

95.The Corporate Sustainability Reporting Directive 70 (see Annex 14 ) acknowledges the important role of payment practices in the management of a company and the quality of relationships with suppliers and requires payment practices to be covered in the reporting standards 71 .

96.Digital means such as e-invoicing can facilitate timely payments. Promoting the use of modern digital payment tools and digital literacy can result in shortening invoice-processing time, reducing error rates and streamlining companies’ cash management. Since the adoption of the LPD, both digital banking payment solutions and automated accountancy programs have become universally available on the market. They can foster prompt payment by providing liquidity management solutions.

97.Digital solutions can boost transparency and facilitate reporting obligations resulting from several legal instruments. The directive on electronic invoicing in public procurement 72  aims to make the use of e-invoicing widespread. The VAT in the digital age proposal 73  aims to make compliance with VAT easier for businesses by better harnessing the potential offered by digitalisation. Public authorities and companies could benefit from open and reusable digital solutions 74 which the Commission is making available for free, e.g. eID, eSignature, eDelivery, see Annex 22 .

98.The Commission launched a call in March 2023 for a pilot project for the uptake of alternative dispute resolution mechanisms and mediation 75  to address the lack of accessible (i.e. alternative to legal action) tools for companies to take action against their debtors. The project’s limitations (geographical scope, duration) are unlikely to provide a sustainable EU-wide solution.

99.Finally, higher inflation and higher interest rates provide additional incentives for paying late. With record-high inflation exceeding 9% in 2022 76 and associated rises in interest rates, the possibility of using free funding (by paying late) has become more attractive. Inflation also points to the need to adjust the EUR 40 compensation fee for hassle costs to which a creditor has the right. According to an EU-wide survey 77 , six out of ten companies are worried that the risk of late payments will grow in the short term, due to inflation.

100.The current baseline is likely to deteriorate in the future because of the war at EU’s borders, inflation, higher interest rates and energy prices shock. 

5.2Description of the policy options 

101.The policy options (PO) address the problem drivers (section 2.3) through a user-driven approach to achieve the objectives (section 4), in particular by:

1)fixing the framework conditions to prevent late payments;

2)fixing the market failure resulting from imbalances in bargaining power to facilitate timely payments;

3)empowering SMEs to take action, challenge unfair conditions and claim redress when paid late.

102.The activities related to the monitoring LPD’s implementation (see Annex 6 ) have allowed the Commission during the last 10 years to pre-identify the specific areas for intervention among several possibilities across the political/regulatory spectrum (defined within the limits of political and legal feasibility and Treaty competences, see Annex 14). The options presented and assessed in this report focus on areas of intervention pre-identified as critical for combating late payments: the ‘framework conditions’ including the degree of freedom of contract, ‘the enforcement’ and the ‘redress mechanisms’.

103.Each option presents a different degree of intervention among these areas. PO1 considers a stronger intervention on the ‘freedom of contract’ under ‘framework conditions’ to bring a better balance between freedom of negotiation and fairness, by laying down stricter payment terms. The option’s rationale is prevention and it envisages no EU intervention on ‘enforcement’ and ‘redress mechanisms’, leaving these elements to the existing baseline scenario. This approach essentially follows the specific policy choice recently made in the Netherlands, where payment terms in B2B transactions have been reduced from 60 to 30 days 78 . PO2 focuses on ‘enforcement’, by sharpening deterrents (interest and compensation fees) and designating enforcement bodies. This option leaves more freedom to the parties at the outset of their contractual relationship but is more focused on ensuring the implementation of the will of the parties. The rationale for this option is to ensure that agreed payment conditions are met and intervening only if this is not the case. This approach has recently been put in place in Spain (see Annex 9). PO3 focuses the intervention on remedial measures. It is the least interventionist at the level of the freedom of the parties. The measures assessed under this option seek to improve the redress conditions when payment terms – which have been freely negotiated – are not met, and where the existing deterrents have not been effective. This approach has been implemented in Belgium and in Ireland in the construction sector 79 . 

104.Each proposed policy option is put forward as standalone, therefore can be introduced independently from others. However, each option aims to address only a part of the shortcomings of the current situation. In addition, options include different sub-options which vary in the degree to which they respond to the individual specific objectives.

105.Policy options contain legal measures. The analysis consists in choosing the best sub-option to address the policy option to which it belongs. In the next step, individual (standalone) policy options are compared against a package of individual policy options to determine the best way to achieve the objectives. The preferred package is a combination of three policy options.

5.2.1Policy option 1: Prevent late payment from occurring 

106.Policy option 1 (PO1) seeks to address drivers (section 2.3.1) identified with regards the specific objective 1 (section 4.2.1). Policy measures considered under this option aim at ensuring prevention. They focus on the early stages of commercial transaction, including the stage before the contract is signed. This is because late payments may stem from unfairly negotiated contracts, which from the start force the creditor to accept excessively long payment terms. Through this practice a debtor plans for an effective payment delay and incorporates it into the contract. The problem becomes invisible, because it is included from the start into the contract and formally accepted by the creditor. 

107.The current regulatory framework does not set an absolute maximum payment term in B2B transactions. The EP pleaded for the setting up of preventive measures to combat late payments, including capping of payment terms in B2B transactions, introducing transparency obligations, and providing SMEs with training on credit and invoice management 80 . The Fit for Future platform refers to similar measures (recommendations number 4, 5 and 7 of the F4F opinion 2021).

108.Policy option 1a (PO1a) sets up a maximum payment term in B2B transactions, making it mandatory for businesses to pay in maximum 30 days. This would introduce a clear legal limit to B2B transactions. While this would limit the current freedom of contract, it would boost the degree of fairness with which payment terms are set and establish a better balance in the negotiation of payment terms.

109.A possibility for capping payments in B2B transactions at 30 days but allowing for (longer) specific payment terms for certain identified sectors, in particular those characterised by seasonality or long shelf-life of products 81 is addressed in section 6. In France there are specific payment terms for identified sectors (‘Délais dérogatoires’) 82 .

Table 1: Policy option 1

110.The verification procedure for assessing the compliance of the goods or services would be capped at 30 days. Therefore, the result would be a maximum of 60-day (30+30) payment term for all B2B transactions and where a verification procedure is required by the contract. The Court of Justice 83 emphasised that verification procedures are often used to delay artificially the payment period 84 and therefore, their inclusion in the contract must be ‘objectively justified by the particular nature of the contract in question or by certain of its characteristics’ 85 .

111.PO1 proposes different combinations of the same type of measures to make sure that payment terms are negotiated fairly.

112.PO1a includes measures to address the information asymmetry about payment performance of public authorities. Knowing whether a perspective public sector client is a good payer or not, is valuable information. The company could then factor it in in the tender or offer. The data made available through this measure would be included in the EU observatory of payments and support the Commission’s enforcement activities.

113.Member States should boost availability and facilitate access of to credit management and financial literacy training for SMEs, to make them less vulnerable to late payment.

114.Policy option 1b (PO1b) would cap payment terms in B2B transactions at 60 days. It would allow to limit the impact on the freedom of contract, while reducing the room for discretion and unfairness. Verification procedure would be capped at 30 days. PO1b would set the maximum of 90 days for payment terms in B2B transactions, where the contract provides for a verification procedure (which must be objectively justified).

115.Measures to address the information asymmetry on payment performance and to boost availability and facilitate access of SMEs to credit management and financial literacy training would be the same as under PO1a. 

116.Policy option 1c (PO1c) is similar to PO1b in capping payment terms in B2B transactions at 60 days. However, this limit would apply only to B2B transactions where the creditor is an SME. Identifying SMEs will rely on the criteria laid down in the SME Definition 86 . Payment terms in transactions between large businesses, or between SMEs and large businesses, where the SME is the debtor, would remain regulated according to the current provisions. This specific measure is already in place in Belgium and in Poland 87 . In the Netherlands it was applied from 2017 until 2022 (in 2022 the cap was brought from 60 to 30 days). Capping the verification procedure at 30 days aims to ensure a predictable payment framework for SMEs, so that they can expect that payments they are owed in B2B commercial transactions do not exceed 60 days - or 90 days if a verification procedure is included in the contract and objectively justified.

117.Measures to address the information asymmetry on payment performance and to boost availability and facilitate access of SMEs to credit management and financial literacy training would be the same as under PO1a and PO1b.

5.2.2Policy option 2: Facilitate timely payments 

118.Policy option 2 (PO2) contributes to specific objective 2 (section 4.2.2). The measures under this policy option aim at combating late payments by ensuring that the rules are enforced, payment terms are respected, and administrative sanctions kick-in in case of no-compliance (see point 21 of the EP Resolution 2019).

119.Policy measures under PO2 provide for using stronger deterrents, setting up enforcement bodies, and verifying that payment to the main contractor has been passed onto the subcontractors in public works contracts. As a standalone option, these proposals would apply irrespective of the baseline for the setting of the payment terms. Some of the proposed measures directly respond to the EP Resolution of 2019 and the opinion of the Fit for Future platform 2021 (recommendation n.10).

120.The first measure proposed under policy options 2a (PO2a) and 2b (PO2b) consists in removing the current ‘entitlement’ to interests and compensation fees and making their payment legally automatic (see glossary). This means that businesses and public authorities, if they do not comply with the statutory payment terms or the terms agreed in the contract, shall be legally obliged to pay interests and flat fee compensations. Any negotiation, practice or clause to the contrary would be a violation of the rules. According to this measure, the only legal way to avoid paying interest and compensations is paying on time. Furthermore, it will be clarified that interests continue accruing until the legal obligation to pay is extinguished (see court case C-256/15 in Annex 11 ).

121.The subsequent set of measures consist in increasing the efficacy of the late payment compensation by exploring whether they should be adapted to inflation or not, and, for the EUR 40 flat fee compensation, whether introducing a staggered value according to the value of the invoice (as in the original proposal for the LPD, and as applied in Ireland and Poland) would be an effective solution or should the fee be revised to EUR 50 to account for past inflation.

122.Enforcement is a key issue identified in the drivers, which was neither addressed in Directive 2000/35/EC nor in the LPD. The EP Resolution 2021 recalled in this respect that the (then) ‘proposal for a directive on unfair trading practices in business-to-business relationships in the food supply chain ( COM(2018)0173 ) includes provisions on late payments […] and the designation by Member States of an enforcement authority to monitor compliance with the rules.’ PO2a and PO2b differ in the degree of powers they entrust to the enforcement body.

123.Fostering better synergies with other EU policies, e.g. on public procurement, can strengthen the enforcement of the obligation to pay on time. The 1995 Recommendation and the 2019 EP Resolution indicated specific measures to ensure this synergy. This measure was inspired by the recently introduced Spanish legislation ‘Crea y Crece’ 88 and is without prejudice to trade confidentiality agreements that might exist between main contractor and subcontractors.

Table 2: Policy option 2

5.2.3Policy option 3: Strengthening redress mechanisms to ensure fair payment conditions and to empower SMEs

124.Policy option 3 (PO3) seeks to contribute to the specific objective 3 to complement and strengthen redress mechanisms to empower SMEs and ensure more fairness in commercial transactions.

125.The policy options 3a (PO3a) and 3b (PO3b) aim to remove ambiguity in definitions, reward and support prompt payment, eliminate possibilities for arbitrary interpretation of the law, and empower SMEs to challenge unfair conditions. The measures on ADR, the need to address the question of unfair contractual terms and practices through their applicable national law are inspired by the EP Resolution 2019 and the Fit for Future platform’s opinion 2021 (recommendations 1, 2, 3 and 6).

126.Policy options 3a (PO3a) and 3b (PO3b) focus on empowering SMEs to challenge lack of fairness in payment conditions by providing means of redress alternative to court proceedings. The options explore the alternatives of appointing a national payment envoy (PO3a) or setting up a national mediation system to solve payment disputes (PO3b).

Table 3: Policy option 3

127.PO3a puts forward appointing a payment envoy, based on similar solutions already in place in the Member States (e.g., France, Hungary, Slovakia) and in the UK (e.g. Small Business Commissioner) 89 . The envoy would be an interface between the government and businesses on payment delays and their impact on SMEs. The envoy could play an advisory role in the design of national policies and initiatives to combat late payments. They could play a role in raising awareness, providing information and education, and promoting, where available, national prompt payment codes. They could be a central point for collecting data on payment performance. By ensuring confidentiality to the victims of late payment, the envoy could gather intelligence about unfair payment practices 90 . Although the envoy would not be tasked with solving disputes or issuing administrative fines, Member States could decide to empower the envoy with these competences.

128.PO3b provides for setting up a national system of mediation. Recital 34 of the LPD requires Member States to encourage recourse to mediation or other means of ADR and quotes the Mediation Directive (2008/59/EC) 91 . The 2019 EP Resolution calls on Member States to set up national and/or regional ‘free and confidential’ mediation services ‘accessible to all companies, as an alternative to court proceedings, to resolve payment disputes and maintain business relations’. The resolution also calls for the ‘public funding of independent ombudsmen responsible for investigating late payment and non-payment disputes, assisting small businesses in resolving late payment and non-payment disputes, advising on action in the event of payment arrears and recommending solutions, particularly to SMEs’.

129.PO3a and PO3b put forward a proposal to Member States to specifically address the question of unfair contractual terms and practices through their applicable national law. This should avoid the risk of circumvention of the stricter new rules as result of unfair contractual terms or practices introduced for example by the stronger party in a contractual relationship. According to this approach, Member States would be required in the new legal instrument to provide for specific solutions preventing such circumvention.

130.The specific relationship between the LPD and the UTP might require better clarification. This could be done either through a revision of the UTP Directive or, alternatively, in the context of the revision of the LPD, without prejudice to all relevant legal considerations regarding, for example, the legal base or the choice of legal instrument. Provided that this clarification within the context of the LPD revision is legally feasible, this could be presented as follows in the new legal instrument:

1)The application of the revised legal text (lex generalis) to those commercial transactions for the supply of agri-food products which do not fall within the scope of the UTP directive. In particular, the UTP directive, in its Article 1 (2), excludes from the scope of the UTP directive commercial transactions for the supply of agri-food products between buyers and suppliers operating within the same “bracket” (e.g. within the brackets identified in letters from a) to e) of article 1.2 of the UTP Directive). Therefore, any of the PO1 and sub-options might clarify that payments for these specific transactions would fall within the scope of the new revised legal instrument (lex generalis).

2)To ensure maximum coherence, it might be clarified that the new maximum capping option under PO1b would be without prejudice to the commercial transactions falling within the scope of the UTP, with the exception of the payment period applicable to the supply of non-perishable food products, which are currently subject to a 60-days cap under the UTP Directive. Moreover, the maximum cap of payment periods at 30 days (PO1a) in the revised legal instrument should be in any case without prejudice to the specific rules applicable in the agri-food sector to value sharing agreements, payments in the context of the school scheme, and to certain payments in the must and wine sector 92 .

3)The revised Directive or the new Regulation might also lay down an obligation aimed at ensuring cooperation and coordination between the enforcement authorities that are already in place as a result of the transposition and implementation of the UTP Directive and the enforcement authorities that will be set up as a result of the revision of the LPD (see PO2).

5.3Form of the legal act

131.Regarding the choice of instrument, the options are adopting a regulation (option 1) or keeping the same legal instrument by revising the current directive (option 2).

132.The two options show some key differences.

133.In the case of the first option, where a regulation would repeal and replace the current directive, the provisions of the future act would be drafted in such a way that they are directly applicable. Such provisions would be directly applicable in all Member States since its entry into force. While national law would need to adjust to the EU regulation, there would be no need for a transposition. A regulation would be binding and the same rules would apply in all Member States. This could happen in particular as regards measures such as the setting of maximum payment terms, the duration of the verification procedures or the rate of late payment interests and the amount of the flat fee compensation. The regulation would also need to introduce directly applicable provisions regarding requirements to contractors to provide evidence on payments to subcontractors in public procurement works (see for more detail Option 2a). Possibly certain specific provisions could explicitly allow Member States to adopt more stringent provisions, where this is carefully calibrated so as to allow operators and national authorities to clearly know which provisions apply. As a minimum harmonisation instrument, the regulation would also lay down obligations and definitions concerning the designation of national enforcement bodies, national mediation systems, credit management and financial literacy training and unfair contractual practices and provisions, but it would be for the Member States to complement them as these provisions might not be directly applicable. The new regulation would also incorporate the existing provisions of the LPD which are not touched upon by the existing revision and which do not need to be revised.

134.In the case of the second option, where a directive would amend the existing LPD, the new legal instrument would limit itself to introducing the measures identified in the preferred option (see section 8) as amendments to the existing directive. Member States would then need to transpose the amended Directive into national law. Member States will still be allowed to either maintain or introduce measures that are more favourable to the creditor (e.g. shorter payment terms, or specific payment terms for identified sectors, or higher rates of late payment interests and flat fee compensation).

135.An assessment of the costs and benefits of each choice of legal form is applied to the preferred option in section 8.

5.4Measures discarded at an early stage 

136.The following policy measures were considered but discarded (reasoning in Annex 14 ):

1)making e-invoicing mandatory; notably due to the current Commission proposal COM (2022) 701 (dynamic baseline scenario) which already addresses this goal ( Annex 22 );

2)offsetting credits owed by the public authorities with debts owed to the public authorities (income taxes, local taxes); the LPD’s legal base is not adequate and subsidiarity and competence issues would plead against such a measure: direct taxation and local taxation do not fall under EU competence; 

3)transparency obligations for businesses and public authorities: discarded for political feasibility reasons, as this would require reporting obligations;

4)fostering synergies with public procurement by obliging contracting authorities to exclude from procurement those contractors with overall bad payment performance towards their subcontractors: as this would require evidence difficult to provide and check, and would thus be burdensome for public authorities and for businesses;

5)in G2B, requiring contracting authorities to accelerate payments for low value contracts beyond the current provisions of the LPD and not requiring verification procedures: as this would interfere with the subsidiarity and proportionality principles and with other existing EU law.

6What are the impacts of the policy options?

137.All policy options described above will have mainly economic impacts. The social and environmental impacts are not assessed separately for policy options. The impact of all policy options is described both qualitatively and quantitatively, where possible. The methodology for arriving at quantitative impacts is described in Annex 4 . 

6.1Economic impacts

138.All options will have significant economic impacts. Where the impacts differ per policy option, they are spelled out clearly. The policy options will have impacts on enterprises, including SMEs, and their competitiveness, as well as on public authorities. None of the policy options entail direct impact on citizens or consumers. The overall effect on the competitiveness and a proper and efficient functioning of the single market is likely to indirectly affect consumers, helping to guarantee a wide choice of products and to ensure that supplies reach consumers at reasonable prices. Some indirect positive impact is expected on consumers’ purchasing power, following indirectly from the likely positive impact on employment. The overview of economic impacts is in Annex 25 .

6.1.1Policy Option 1: Fix the framework conditions to prevent late payments

6.1.1.1Impacts on enterprises

6.1.1.1.1Benefits

139.PO1 focuses on ensuring that payment terms agreed between parties are fair.

140.Considering that currently 73% of all companies have been asked to accept higher payment terms than they are comfortable with, the capping of payment terms can bring a real benefit to companies. It can reduce real payment times, reduce negotiation times and empower particularly smaller businesses. It will also facilitate enforcement.

141.Quantifying the effect of capped payment terms on actual payment times relies on some estimations. In an optimistic scenario, payment times will tend to match payment terms. Under realistic scenario, some companies still pay after the agreed payment term. Currently, in every EU Member State, actual payment times are higher than payment terms agreed (see section 2). To map this effect, we assume payment times to go down proportionally to the reduction of the payment term. A pessimistic scenario assumes the reduction in payment terms to have no effect on payment times. This is a risk of PO1 in isolation because it includes no direct enforcement measures. However, evidence from the LPD suggests that the above-mentioned proportional reduction is the most likely even when PO1 is a self-standing option. After the 2011 LPD introduced capping on payment terms in G2B transactions, the actual payment times showed a significant downward trend. Payment delays by public authorities went down from 27.8 days in 2011 to 16.8 days in 2022, a reduction in 40% 93 .

142.These assumptions bring the following reduction in payment duration for each sub-option:

1)PO1a (Capping at 30 days): Taking current average payment terms in B2B transactions of 39.3 days and actual payment times of 52.6 days 94 as a baseline, a 30 days capping will involve a reduction in payment terms for every EU company on average. In an optimistic scenario where payment times comply with the terms agreed, a 30-day cap would produce a reduction of 22.6 days of actual payment duration, or nearly 43%. In the realistic scenario of proportionally reduced payment times, a 30-day capping would lead to actual payment duration of 40.2 days, down by 12.4 days or 23.5% (or a reduction in payment delays from 13.3 days to 10.2 days, a reduction of 23.4%) – see Annex 4 .

2)PO1b (Capping at 60 days): As current average payment terms and times in B2B transactions are already below 60 days, this option would not necessarily bring down the payment terms for the average EU company. Instead, this option would target only excessively long payment terms. Therefore, the benefits of this option are significantly lower than the option of capping at 30 days, but it would imply substantial benefits for a subset of companies. Estimating from the European Payment Report, currently 14.4% of all companies specify payment terms above 60 days 95 . While there is no precise data on how much payment delays this specific subset of companies faces, the JRC study on the economic impact of faster payments suggests that companies that were collecting payments in more than 60 days, on average, show a 10% increase in cash flow four years after the enactment of the LPD 96 .

3)PO1c (Capping at 60 days where the creditor is an SME): The benefits of this option are similar to the option of capping at 60 days (PO1b), but will affect a smaller subset of invoices. Calculating from the number of companies per size class and the average number of invoices issued by size class, we can estimate 66% of all invoices being issued by an SME 97 . This sub-option would therefore affect 66% of the invoices of the above-mentioned 14.4% of all companies.

143.Stakeholders largely support capping payment terms. The results are most clear in the SME panel, where 83% of SMEs support a cap on payment terms. SMEs are more split about the level for this cap: 36% support a cap at 30 days (up to 44% among micro-companies and self-employed), 28% support 60 days (up to 36% among small companies) and 17% support 45 days instead.

144.PC also shows broad stakeholder support for setting a maximum payment term in B2B transactions (59% in total, and the most popular option for each type of respondents, such as business associations, public authorities and individual businesses). However, the most popular options in the PC for payment terms are either to remain as they are (29%) or to be capped at 30 days (27%). The option of 60 days finds support of only 9.4% of respondents. Several stakeholders proposing ‘Other options’, express aversion to limiting freedom of contract. This suggests that those stakeholders who wish to see freedom of contract retained want to keep things as they are; whereas if the freedom of contract is restricted in any way, it should be used for the most effective option, hence the cap at 30 days.

145.PO1c finds little support overall, with only 2.5% of stakeholders in favour of limiting payment terms to 60 days only in transactions between large companies and SMEs. The only support to this option came from a few small business associations and individual EU citizens in the public consultation; no companies or public authorities expressly supported this option in the consultation.

146.In this option we have also analysed a potential alternative for exceptions for specific sectors. Introducing a sectoral approach finds relatively little favour among stakeholders (4.2% in the PC, and 12% of SMEs in the SME panel). Some stakeholders from retail, wholesale and textile sectors express opposition to uniform payment terms. According to these stakeholders, maximum payment terms should not be enforced in sectors with strong seasonality (e.g. textile), and capped payment terms would harm smaller companies who rely on long payment terms and would find it difficult to access financing otherwise (retail). Such sector specificities could be addressed more adequately by sector-specific funding options from finance providers than by supplier credit.

147.We have assessed these arguments carefully. There is some evidence for certain sectors that routinely specify longer payment terms. Although the average payment term specified is fairly similar across most sectors, ranging from 37 to 42 days 98 , among those companies pertaining to none of the listed sectors in the Intrum survey (‘Other’ sector), payment terms are significantly higher, at 59 days.

148.Business associations representing exclusively SMEs specifically argue against longer payment terms for large retailers or the construction sector. Arguments for the retail and textile sector should be weighted against the fact that sales in these sectors are made for cash. SME panel respondents do not support a sectoral approach either. Sectors with the highest number of replies are listed in the table below. ‘It is necessary to establish exceptions for certain sectors due to the specificity of the supply chain or of the market’ or ‘I do not agree with a maximum payment term’ is the preferred option for none of the sectors.

149.However, against this it is important to weigh the cost of specifying different payment caps per sector or exempting certain sectors entirely, which will be further detailed under the section 6.1.1.1.2 on costs.

150.PO1a, PO1b and PO1c contain the capping of the verification or acceptance procedure at 30 days, without exception. This aims to prevent debtors from using long verification procedures to circumvent the maximum payment terms. SME panel shows that 66% of respondents have faced this practice. There is no data how widespread the practice is. One business association responding to the PC described the problem as ‘unfortunately very common’. Capping this practice is therefore likely to further reduce actual payment duration, even if this cannot be easily quantified.

151.In addition to the direct reduction in payment terms, capping payment terms will lead to reductions of other costs for businesses, mainly for reducing the time needed for negotiating payment terms (41% of SMEs negotiate payment conditions on a case-by-case basis), saved costs due to less chasing of late payments, and a stronger market position for those enterprises (often smaller ones) which are currently forced into terms they are uncomfortable with. The reduction in enforcement cost on companies from chasing fewer payments, for example, can be significant. The number of person-days per year a company spends on chasing late payments has been estimated from 5 days in Germany to more than 15 days in Spain 99 . Even if we only assume 5 days per year, under the above-mentioned expected reduction in late payments of 23.4%, a total of 227.4 million man-hours could be saved per year for the EU-27 economy. This would be a significant recurring enforcement cost saving of EUR 5 845,4 million.

152.Other of these effects are difficult to quantify but have the potential to strengthen the fairness of the EU economy, contributing to sustainable competitiveness. This is clearest in negotiations; where companies are currently forced to negotiate payment terms longer than they are comfortable with, when payment terms are capped the scope for negotiation and imposition of unfairly long terms by the dominant partner is severely limited. As parties will continue to be free to negotiate their contracts below the maximum payment terms, negotiation times will only be affected for companies that currently negotiate above the maximum payment terms, and companies that will align their payment terms to the new maximum instead of negotiating case-by-case. Parties will not be able to negotiate longer payment terms than defined in the maximum cap depending on the sub-option.

153.These benefits differ depending on the option chosen. PO1a (Capping at 30 days) will reduce negotiation times for every EU company on average. We assume that the SMEs that are currently paid within 30 days (44%) and that currently negotiate on a case-by-case basis (35%) might partially cease to do so and align to 30 days (conservatively 50% of those), therefore 8% of SMEs would see a reduction in negotiation time. In addition, for SMEs that are currently paid beyond 30 days and that were doing so based on negotiation, the capping would as well get rid of the negotiation part for 100% of them. This applies to the 45% of SMEs that are currently paid beyond 30 days (56% from SME panel): a total of 25% of SMEs. Taking these two cases together, overall, the avoidance of negotiation should benefit around 33% of SMEs.

154.PO1b (capping at 60 days) will only benefit the 14.4% of companies most affected by excessively long payment terms, and PO1c (capping at 60 days where the creditor is an SME) will only benefit 66% of negotiations conducted by these 14.4% of companies.

155.Besides the direct savings in terms of cost and time, there are other unquantifiable effects on businesses. Enterprises, particularly small market players, are empowered to make more informed decisions when signing a contract. They know what payment terms to expect regardless of the size or market position of the other party.

156.Companies will also be able to benefit from the horizontal measures provided for in this PO. Access to credit management and digital financial literacy trainings can provide a direct benefit to SMEs, with the value of such trainings currently ranging between EUR 200 and EUR 1 800. It is left up to Member States to design the most suitable form of making available this training to SMEs, in line with existing provisions on state aid. This measure has found near-universal support in the stakeholder consultation: 73% of stakeholders support it, and it is the only measure not to receive a negative response. This support is widespread across all types of respondents, including business associations, public authorities and companies.

6.1.1.1.2Costs

157.PO1 will impose some costs on businesses, particularly debtors.

158.Businesses that use long standard payment terms (either as their preferred or forced choice) will have to update their standard payment terms on invoices. This would only apply to those companies that do not negotiate on a case-by-case basis, as these companies currently do not use a standard template. The related one-off adjustment cost is relatively limited per company: updating standard terms is likely the same cost as processing a paper invoice (estimated by the ECB 100 at EUR 2.50 – 10.00), however it will only need to be done once to adapt the template. Although a small cost per company, this will affect a large number of companies depending on the sub-option chosen.

1)PO1a (Capping at 30 days) will affect all companies currently specifying payment terms longer than 30 days. According to EPR 2022, 42% of all companies currently do so (and this is broadly in line with the finding from the SME panel that 56% of SMEs currently do so). Excluding cases where this is the result of case-by-case negotiations (45% of SMEs according to the SME panel), this only applies to the companies where the payment terms longer than 30 days are the result of imposing own payment conditions (23% of SMEs), being imposed payment conditions (21%) or finally the result of sectoral standard practice (11%). Therefore, the one-off cost is assumed to be borne by 55% of SMEs that are currently paid beyond 30 days (42% of all companies): around 23% of companies. Conservatively assuming the top end of the ECB range, this would impose a total one-off adjustment cost of EUR 56.1 million.

2)PO1b (Capping at 60 days) would only affect the 14.4% of companies specifying payment terms longer than 60 days. The total one-off adjustment cost would be EUR 35.0 million.

3)PO1c (Capping at 60 days where the creditor is an SME) would only affect 66% of the invoices under the previous option. The total one-off adjustment cost can be estimated at EUR 23.1 million. However, an additional one-off administrative cost related to verification for a creditor may be required if the debtor wishes to verify that the creditor is an SME. The evaluation of the SME Definition estimates this cost at 6.5 person-hours per SME to collect and provide information to prove their SME status 101 . Even assuming every SME would only have to prove it once already leads to an estimate of 15 million person-hours spent, or EUR 384 million assuming average EU hourly cost 102 . This verification cost therefore makes PO1c the costliest of the three choices under PO1, despite affecting only a relatively small subset of companies.

159.In the alternative consideration in PO1a for setting different caps for certain sectors or exempting certain sectors entirely, companies that wish to set long payment terms would face an additional one-off administrative cost of proving that they belong to a certain sector. This usually entails providing an extract from company register, which companies obtain on a regular basis for different business operations. This cost is largely considered as business as usual and its magnitude is insignificant.

160.In addition to the one-off costs specified above, debtors are likely to face consequences for their business operations. As late payments are a form of hassle-free credit, any reduction in payment duration will force the debtor to seek additional financing to meet the new payment terms. This will entail both one-off cost of dealing with the bank and recurring costs related to interests. However, the net interest costs of the new financing would likely be favourable to the debtor because the interest implicitly included in the prices of goods or services currently purchased on supplier credit is likely higher (see section 2.3). In addition, the need for additional financing is likely to be limited, because the debtors will benefit from being paid on time themselves. 65% of all respondents in the PC gave ‘Late payments are a vicious circle (a company is paid late and then pays late in return)’ as the top reason for late payments. This indicates that if debtors themselves are paid on time, they will find it easier to meet the payment terms to their creditors.

161.However, some debtors, including SMEs, deliberately rely on late payments at the moment to finance themselves with almost-interest-free credit. These debtors could face a recurring cost if they were unable to use this credit. The cost of this is hard to estimate because few companies openly state this as a reason for their late payments. An impact assessment on late payments by the Australian government may provide some indication 103 . This impact assessment estimates that annual trade credit from small to large businesses amounts to $AUD 216 billion. Converting this to EUR and extrapolating to the size of the EU economy, we can estimate a EUR 1.34 trillion trade credit from small to large businesses in the EU. Even assuming the above figure of 65% of late payments only being due to a vicious circle, if the remaining trade credit will have to be borrowed at market rates, debtors may still face a financing cost of tens of billions of euros per year. Yet this effect is not a net cost because the reasoning does not consider that debtors are already paying an implicit interest on supplier credit. The debtor currently only avoids the need for this financing by forcing its suppliers to cover the financing cost instead. Seeing that interest rates for large businesses are usually lower than for small business, the same Australian impact assessment has found that despite the costs for debtors, there will be a sizeable net benefit to the Australian economy of $AUD 313 million per year.

162.Besides the monetary net benefits, this is also a question of sustainable competitiveness and fairness. While it may impose a financial cost on a debtor to pay their suppliers on time, this is preferable to the debtor imposing those financial costs on its suppliers. Even if the cost-benefit were exactly neutral, the fairer option would still be preferable.

163.Some indirect effects could arise from the measure to facilitate SMEs’ access to credit management and financial literacy training. Commercial providers of such training courses may find a distorted playing field if Member States provide or subsidise such courses. This risk is reduced if Member States focus on providing access to commercially provided courses to SMEs (e.g. by subsiding part of the participation fees).

6.1.1.2Impacts on SMEs and competitiveness

164.PO1 will have impacts on SMEs and the economy’s competitiveness. All measures target either all companies or specifically SMEs (e.g. PO1c). No exclusion of scope for any measures is planned.

165.The initiative should strengthen overall competitiveness. Although reducing late payments may bring costs to debtors while providing benefits to creditors, the net effect of this is not zero-sum, but a measurable economic benefit. On average, the effect of the on aggregate cash flow amounts to a 0.9% increase for each differential day. This effect is more marked in the manufacturing and construction sectors, characterized by a strong presence of SMEs in the relevant supply chains 104 . There is also an unquantifiable benefit of reducing uncertainty and making business environment more predictable.

166.Therefore, the effect on price/cost competitiveness and innovation competitiveness is expected to be positive. With an increased aggregate cash flow in the economy, enterprises have more liquidity to invest in innovation or to pass cost reductions to consumers. Doing business is more predictable, and fairer, with every business paying for the liquidity they need and use. Cost of funding goes down, because banks directly fund the risks of their clients, which they understand well, rather than indirectly finance the unknown risk carried by their customers.

167.On international competitiveness, there is some risk that non-EU companies that are not bound by maximum payment terms can undercut EU companies by offering long payment terms. However, the effect of this is estimated to be limited. Firstly, this effect will likely be cancelling itself between import and export transactions. Secondly, many non-EU countries such as Canada, the US, Türkiye and the UK already impose legislation on late payments as well. Thirdly, this effect has not really been visible within the EU, where some countries such as the Netherlands have imposed stricter legislation on payments than others. In terms of SME competitiveness, impacts on SMEs are likely to be more positive than for large enterprises. As stated in the problem definition, large enterprises are more likely than SMEs to pay late. Large enterprises are therefore somewhat more likely to bear the costs identified in this policy option, whereas SMEs are more likely to see the benefit. 

168.SMEs strongly support the measures identified above, more than the respondents to the PC, where a clear comparison is possible. For example, on capping payment terms, SMEs strongly support a maximum payment term (82%), whereas 59% of stakeholders in the PC support this measure. All measures under this option receive either majority or at least plurality support among stakeholders and SMEs alike. This indicates that thanks to the identified ‘virtuous circle’ of prompt payments flowing up the supply chain, all businesses will ultimately see an improvement to their cash flow and to their competitiveness.

6.1.1.3Impact on public authorities

6.1.1.3.1Benefits

169.Benefits to public authorities in PO1 are limited. No particular cost savings are identified.

170.Indirect effects on public authorities’ budget can be significant. Considering the impact of late payment on bankruptcies and employment, reducing late payment (by more than 23% under PO1a) could provide significant savings on public budget through higher tax revenue and reduced unemployment benefits.

6.1.1.3.2Costs

171.PO1’s costs to public authorities are relatively limited. Since the main measures concern the setting of payment terms in B2B transactions, public authorities do not have a direct cost to implement this measure.

172.In the 2015 evaluation of the LPD, Member States found the administrative costs associated with maximum payment terms to be negligible: ‘All costs to public authorities as a result of the Directive are one-off and, on the whole, they are considered marginal by the authorities themselves’ 105 .

173.Verifying purchases within 30 days may require public authorities to streamline verification procedures. This is not a big change as the purchases must be verified anyway.

174.Providing access to SMEs to credit management and financial literacy training involves some adjustment cost for public authorities. The precise cost will depend on how Member States will structure their support, ranging from promotional campaigns to fully subsidising courses for SMEs in compliance with state aid rules. A full estimate of the cost can therefore not be given in monetary terms.

6.1.2Policy Option 2: Foster timely payments

6.1.2.1Impact on enterprises

6.1.2.1.1Benefits

175.Under PO2, the impact on businesses is mainly a ‘double-edged sword’. Increased compensation and its legally automatic payment will bring significant benefits to creditors who are paid late and help them pay their own debts on time. These benefits to creditors are a direct cost to their debtors who pay compensation. Debtors are likely to want to avoid paying this cost, either by paying on time or by avoiding their obligation to pay.

176.There are therefore, for both PO2a and PO2b, two extreme scenarios that we can assess: (i) no change in late payments and a substantial cost on debtors directly translating into a substantial benefit for creditors; and (ii) a full-scale change of all debtors paying on time to avoid paying interest and compensation fees. Realistically, neither scenario is going to play out 100%, but they are presented here as extreme cases for purposes of quantification, followed by a conservative estimate for a realistic scenario.

177.Making payment of compensation legally automatic would imply a substantial impact. Currently, creditors have to ask for the compensatory interest to be paid, and often avoid doing so for fear of jeopardising the business relationship. 54% of companies, even those familiar with the entitlement to compensation under the LPD, say they never ask for it, and a further 26% only sometimes ask for the compensation 106 . SME panel paints an even starker picture, with 80% never receiving interest or compensation, 8.5% rarely and only 1% often. Even under legally automatic payment, it would be unrealistic to assume 100% of compensation to be paid. Companies may still not seek redress if their debtor does not pay interest or compensation fees.

178.Yet even under very conservative assumptions, automatic payment of the compensation interest (ECB rate + 8%) would provide significant benefits of EUR 265.5 million to creditors. SME panel replies indicate that 8.5% companies currently rarely receive compensation. A conservative assumption that half of them would receive their claims for compensation more regularly, would represent an increase in 4.25% of companies. We round 4.25% up to 5% assuming that this is the share of compensation interest successfully paid out. We take the value of unpaid turnover (as assumed in the Impact Assessment 2009, at EUR 1 864 billion; the value has likely changed but still serves to provide an order of magnitude 107 ) as the basis for calculation of interest. We conservatively assume interest rate at 8% 108 , and take the average delay of 13 days. See Annex 4 .

179.PO2a and PO2b imply significant benefits to creditors from direct compensation fees. The share of invoices not paid on time varies significantly by Member State. However, assuming the best actual performance (i.e. Denmark, where in 2021 90% of payments were made on time 109 ) would lead to the compensation fees to be applied to a total of 10% of the 15 billion B2B and G2B invoices every year. Assuming conservatively that only an extra 5% of companies will receive the flat fees once their payment is made automatic, we can see what a sizeable impact the consistent application of compensation fees would have (see Annex 4 ).

1)PO2a (adjusting EUR 40 flat fee to inflation): Adapting the flat fee to inflation (based on Eurostat HICP comparing 2022 to 2011) would lead to a new flat fee of 50 euros. The total benefit to the additional 5% of companies receiving the flat fee would equal EUR 3.75 billion. Those companies that already ask for the compensation fees currently would still obtain the EUR 10 extra per late invoice.

2)PO2b (EUR 40-100 depending on invoice volume): Total benefit to the additional 5% of companies receiving the compensation fee of EUR 3 billion – 7.5 billion, depending on volume of invoices. The companies who already claim compensation fees currently would still benefit from the increase depending on invoice volume.

180.These benefits would be a direct cost for the debtors who pay the interest and compensation fees. Many debtors would therefore try to avoid paying the interest and compensation fees by reducing their payment times. As a negative effect, in those countries which currently do not impose a maximum payment term, debtors might purposely negotiate particularly long payment terms in order to minimise chances of paying late. This would reduce ‘late’ payments as such, but at the cost of introducing unfairly long payment terms.

181.However, the benefit to businesses is clearer when looking at G2B payments. These already have maximum payment terms under the LPD. Governments are therefore more likely to pay on time and avoid compensation (interest and fees), similar to the effects after the LPD’s entry into force. Payment delays by public authorities went down from 27.8 days in 2011 to 16.8 days in 2022, a reduction of 40% (which includes the spike in payment delays in recent years) 110 . Assuming a similar effect from automatic interest rates and increased compensation fees, a further 40% reduction to 10.1 days is possible.

182.The main benefit of this policy option, in the absence of a cap on payment terms, would therefore be a reduction in late payments by public authorities. In B2B payments, late payments are also likely to go down, but the risk of companies negotiating unfairly long payment terms is likely to limit the effect on actual payment times.

183.The SME panel reveals that in 80% of cases interest and the compensation fee are never automatically paid and they are rarely paid in 8% of cases. 15% of medium-sized companies replied that they rarely receive interest and compensation compared to 8% for SMEs on average.

184.In the SME panel, 77% of SMEs support banning practices and clauses that oblige creditors to waive their rights to late payment interest and compensation in exchange for immediate payment. This action is most supported by micros (80%).

185.Debtors are likely to try to avoid paying compensation in other ways too, e.g. by refusing to pay or threatening the business relationship. Particularly smaller players will find it difficult to enforce their claims by themselves. Enforcement of the correct application of interest and compensation fees needs to be done centrally by the Member States. Hence, this policy option puts forward enforcement bodies by Member States.

186.Most stakeholders (see Annex 2) are positive towards setting up enforcement bodies. There is no significant difference between enforcement bodies with sanctions power (PO2a) and those without (PO2b) (47% vs. 50%), The share of negative responses is similar for both (18%), which suggests that the minority opposition mainly comes from the cost to designating an enforcement body in the first place. The negative responses mainly come from business associations and public authorities, with few negative responses from companies themselves.

187.In the SME Panel, businesses were even more supportive of enforcement bodies. 84% of SMEs found this useful or very useful. For this action, no significant difference is found by size of companies or by size of debtor that mostly pay late.

1)PO2a (enforcement bodies empowered to issue administrative sanctions and publish the name of offenders): Such bodies would have the power to impose fines and sanctions on non-complying firms. In practice, fines would usually follow warnings, but warnings by an enforcement body will be more effective when accompanied by the threat of a fine. While it is hard to estimate to what precise reduction in late payments an enforcement body such as this can lead, there is an illustrative example from France. It is estimated that, since the introduction of the enforcement body in France, average payment delays have gone down from 13.6 days to 11.2 days 111 , i.e. a reduction of 17.8%. While a clear causality is difficult to prove, it provides some estimates as to the effects of stronger enforcement.

2)PO2b (enforcement bodies responsible for monitoring implementation): Enforcement bodies could be implemented without sanctioning powers. This would save costs for public authorities but would reduce benefits for businesses that are paid late because the deterrent effect would be much lower here than in PO2a.

188.In addition, PO2 focuses on public authorities setting good examples in payment behaviour, by ensuring that subcontractors in public tenders are paid promptly (which 57% of respondents, including business associations and direct responses from businesses, supported in the PC). This could bring benefits to businesses in public procurement procedures and make it more attractive for SMEs to participate in public tenders. Precise estimates are difficult to quantify, but the example of the UK shows that this policy led to an unblocking of GB 7.5 million over three years 112 . Converting this to euros and extrapolating to the EU-27, this could lead to unblocked payments of EUR 31 million per year.

189.This measure is focused on the construction sector because payment delays in the construction industry are systemic, largely because of the construction pyramid. The complex structures of contracting and subcontracting set the construction industry apart from almost all other industries. For the vast majority of projects, the prime contractor will subcontract various segments of the project to specialized trade contractors. These trade contractors often perform upwards of 80% 113 , and sometimes more, of the actual work on the project.

190.As in PO1, these measures together could lead to a sizeable reduction in enforcement cost for companies through reducing their cost of chasing late payers. Assuming the same number of 5 man-days per year as in PO1 114 , under an expected reduction in late payments of 17.8%, a total of 21.6 million man-days could be saved per year for the EU-27 economy. This would be a significant recurring cost saving of 173 million man-hours.

191.Taken together, the deterrent from the interest rates and compensation fees combined with enforcement bodies and ensuring prompt payment in public contracts could therefore lead to a sizeable reduction in late payments. While precise estimates are difficult to quantify, based on the above-mentioned evidence we expect a reduction in payment times of up to 40% in G2B transactions under both PO2a and PO2b (mainly from the deterrent of interest and compensation), and up to 17.8% of reduction in B2B transactions under PO2a (mainly from stronger enforcement bodies).

6.1.2.1.2Costs

192.The main cost on businesses under PO2 will fall on those debtors that currently pay late. The compensation amounts debtors are liable for if there is no change to current behaviour are enormous. Assuming that automatic payment of compensation would benefit an extra 5% of companies, debtors would pay EUR 265.5 million in interest and EUR 3.75 billion in fees. However, debtors can avoid this cost by paying on time. Debtors would need to obtain the financing needed but this financing would likely be cheaper than the implicit rate they are paying now (see section 2.3 and 8.1.2 for detailed explanation).

193.Under both PO2a and PO2b, some standard one-off adjustment cost will fall on all businesses; if the compensation fee is adapted, businesses will have to adapt their standard payment terms to the new sum. Using the same method as in PO1 and assuming a EUR 10 one-off adjustment cost per company, this one-off adjustment cost would impose a total cost of EUR 243 million for the EU-27.

194.Under PO2a, debtors are liable to administrative fines that enforcement bodies would impose. Extrapolating to the EU-27 from the example of the French B2B payment delays mission would suggest potential fines to firms paying late of around EUR 136.8 million per year. Debtors could avoid these fines by paying on time.

195.Contractors under public contracts will have to show that they have paid their own subcontractors on time. This could affect a relatively large number of companies. There are around 3.7 million companies active in the construction sector 115 . While there are no exact figures on how many of these companies work for the public sector as a main contractor, if we assume all companies working on civil engineering projects are under public contract, we can estimate about 18% of construction companies to be in a public contract, i.e. 666 000 companies 116 . Of these, 26% are main contractors 117 . This measure might therefore impose a cost on around 173 000 companies. Assuming that each of these companies has to provide this information once a year, and the time to collect this information is equal to 0.5 man-hours at EUR 25.7 average hourly rate, the overall recurring administrative cost amounts to EUR 2.2 million. The verification cost to contractors would consist in providing a self-declaration and an excerpt from accounting systems showing that all invoices related to the project had been paid. The measure would only apply to payments to immediate suppliers (Tier 2) of main contractors (Tier 1).

6.1.2.2Impacts on SMEs and competitiveness

196.This policy option and all its sub-options will have impacts on SMEs and the economy’s competitiveness. All measures target all companies, and no exclusion of scope for any measures is proposed.

197.As in PO1, impacts are likely to be more positive for SMEs than for large enterprises. SMEs are particularly affected by non-payment of interest or compensation fees and are less likely to be able to enforce claims without the support of a public enforcement body.

198.Competitiveness is overall expected to be enhanced. As in PO1, reducing late payments will lead to an increase in aggregate cash flow, improved certainty about cash flow and reduced cost of chasing debtors (including the costs of judicial procedures).

199.On international competitiveness, there is some risk that companies outside the EU can accept late payments without automatic interest or compensation fees. However, this effect is not necessarily likely to lead to an actual undercutting of EU companies. Instead, the most likely effect is that also those EU companies competing internationally will refuse to claim the interest rates and compensation fees. This effect is already priced in for the above calculations, where the monetary value of interest and compensation fees only assumes a 5% increase in companies receiving interest and compensation, and where the effect on B2B relations is estimated to be smaller than for G2B. Furthermore, mismatches in the length of payment terms in international transactions are usually addressed by trade finance solutions e.g. cash-in-advance, letter of credit, documentary collections, open account and consignment 118  (see Annex 5 ), which significantly reduces the impact.

200.There may be some costs arising from PO2 to SMEs. SMEs, like any other business, will have to pay interest and compensation fees if they pay late. If SMEs find it difficult to enforce interest from debtors but must pay interest to creditors, where they pay late because they have been paid late, the automatic interest and compensation may affect SMEs more than large businesses.

201.This assessment is confirmed by the responses to the SME Panels. SMEs strongly support the measures identified above, more than the PC respondents, where a clear comparison is possible. For example, on setting up enforcement bodies, SMEs find this measure very useful (84%), whereas 47% of PC respondents support enforcement bodies with sanctioning power.

6.1.2.3Impacts on public authorities

6.1.2.3.1Benefits

202.This policy option provides for no direct savings to public authorities.

203.The measure of ensuring prompt payments to subcontractors in public works contracts can improve the execution of public construction projects. The example of Canada, where a similar policy is in place, has shown that payment delays impede the ability of the federal government to complete its construction projects quickly and at the best value for the Canadian taxpayer 119 . Reducing payment delays in public work contracts therefore benefits the public authority.

6.1.2.3.2Costs

204.Public authorities will incur several costs under PO2. A significant cost is expected to come from the requirement to designate enforcement bodies. Based on examples and estimations from Member States who responded to the Call for Evidence, an extrapolation to the EU-27 suggests a yearly adjustment cost of EUR 60-65 million when including all Member States (see Annex 4). Some Member States already have such enforcement bodies in place, e.g. France. While they would still bear the same yearly cost, this would not impose additional cost compared to the baseline. As only a few Member States have such enforcement bodies in place already, for the analysis of costs we therefore stick to the maximum cost of EUR 60-65 million, so as to use a conservative estimate and rather overestimate than underestimate the true costs.

205.Existing enforcement bodies can also take on those tasks. For example, bodies tasked with enforcing the UTP directive already deal with some aspects of late payments. Member States would therefore not need to set up new bodies, but it would be sufficient to make an existing body responsible for carrying out these tasks.

206.Public authorities that pay late will incur interest and compensation fees. They will either have to pay the compensation provided for or adjust their own payment behaviour.

207.PO2 also implies costs on public authorities in their own public tenders. Public authorities may check the payment behaviour of their contractors when verifying invoices. This would impose some verification time and cost e.g. contacting subcontractors.

6.1.3Policy Option 3: Empowering SMEs and ensuring more fairness in business transactions

6.1.3.1Impacts on enterprises

6.1.3.1.1Benefits

208.PO3 focuses mainly on ensuring that enterprises whose invoices are overdue have an effective and affordable means of redress to ensure these invoices are paid.

209.The main benefits to businesses from PO3 come from reduced enforcement costs to chase late payments. These are currently significant; according to some estimates, between 5 and 10% of administrative work for an SME consists of chasing late payments 120 . It is difficult to quantify how much of this is down to litigation costs in the courts.

210.Currently, many businesses do not take their cases to court, for fear of jeopardising a business relationship or because they cannot afford the upfront costs. In this case, alternative dispute resolution mechanisms may not produce any direct savings; however, they make it more likely for companies to seek redress in the first place.

211.Both PO3a and PO3b target the same objectives. Their effectiveness in reaching these benefits differs somewhat:

1)PO3a (national payment envoy): The envoy, (see 0), would not directly intervene in administrative disputes, unless Member States specifically empower them to do so. As the envoy’s role would focus on providing advice and information, the direct benefits to businesses would not necessarily be monetary. Nonetheless, monetary benefits may materialise if the information provided leads to a recovery of unpaid debt. Extrapolating from the example of the UK’s Small Business Commissioner 121 (see Annex 4 for full calculations and limitations linked to extrapolation), the intervention of a payment envoy could lead to around EUR 2.6 million in recovered debt across the EU-27.

2)PO3b (national mediation system): A national mediation system would more directly lead to monetary benefits for those businesses that currently rely on court litigation, and on access to dispute resolution for those businesses that currently avoid going to courts to recover unpaid debt. Extrapolating from the number of cases by the French médiateur des entreprises 122 , such a system may provide mediation services for more than 70 000 companies across the EU-27. The French mediation service reaches an amicable conclusion in 70% of cases. While court fees vary significantly among Member States, assuming a median court fee of EUR 550 123 this relatively modest number of enterprises supported may already lead to total enforcement cost savings of nearly EUR 27 million (taking into account the 70% success rate).

212.Both measures are equally supported. In the PC, 65% of stakeholders are positive towards a national mediation system, while 65% of SMEs in panels found the national payment envoy useful or very useful.

213.Apart from these measures focusing on avoiding court cases, PO3 foresees stronger legal protections for the creditor if a case ends up in court. Currently, unfair payment practices are poorly defined and it is up to the creditor to prove that a clause or contract was unfair.

214.The proposals to request Member States to specifically address the question of unfair contractual terms and practices through their applicable national law would provide direct benefit for the creditor. The creditor would save on the time needed to prove that a clause or practice is unfair. This time and cost saving for the creditor translates directly into a cost for the debtor who has to prove the clause or practice is not unfair. The idea would be to make it easier for a creditor to argue a case in court pursuant to the measures introduced by Member States. It is difficult to quantify this effect, as it relies mostly on transparency and the final measures to be adopted by Member States. A business will gain a better understanding of whether it is worth going to court if it can check on a list whether the payment practice they encountered is defined as unfair. This may also reduce the number of court cases; if a payment practice is openly listed as unfair according to national law, the debtor has a stronger incentive to avoid going to court in the first place.

215.PO3 will provide the smallest direct reduction of payment delays out of the three policy options proposed, as it targets only those payments that are already late and focuses on helping the creditors recover their debts. The SME panel has shown that 24% of SMEs rarely use mediation services, and 13% use them often. The measures presented above could, in a realistic scenario, aim to increase the share of companies ‘often’ using mediation to the share of those currently using it ‘rarely’, i.e. an increase of 11 percentage points. Assuming that the average payment delay when a company uses mediation services is reduced by 50%, PO3 might lead to a total reduction of payment delays by 5.5%.

6.1.3.1.2Costs

216.The costs to businesses under this option are relatively limited. All parties benefit from mediation services and clear national rules on unfair practices; even debtors will have reduced costs if cases go to a mediation system rather than to court. Indirect effects could include a reduction in income for commercial providers of financial training or mediation.

6.1.3.2Impact on SMEs and competitiveness

217.The measures under PO3 are targeted at SMEs. SMEs usually avoid going to court, for lack of financial means or fear of jeopardising business relationships, and SMEs are therefore most likely to benefit from mediation services or a national payment envoy.

218.Currently, relatively few SMEs use mediation or arbitration services (in the SME Panel, only 7.4% of SMEs stated they used mediation the last time they were paid late, and only 3% used arbitration). This is largely due to the fact that mediation services are not widespread. A national system of mediation would likely bring them closer to SMEs.

219.Competitiveness is overall expected to be enhanced. As in option PO1, reducing late payments will lead to an increase in aggregate cash flow, which will have a positive effect on price/cost competitiveness as well as innovation competitiveness. Both PO3a and PO3b are unlikely to have any effect on international competitiveness because they focus on providing alternative means of redress which companies are free to use or not.

6.1.3.3Impacts on public authorities

6.1.3.3.1Benefits

220.Public authorities are also likely to benefit if their own delayed payments are resolved through a mediation service rather than through court action. The effect of this is estimated to be fairly limited. The UK’s Small Business Commissioner covers only B2B disputes and not disputes with public authorities.

221.In addition, public authorities will see a smaller burden on their judicial system if more cases end up solved in mediation services or avoid court cases.

6.1.3.3.2Costs

222.The costs on public authorities stem mainly from having to set up and run the office of the national payment envoy or the national mediation service. Based on similar existing bodies, the cost of the sub-options on Member States can be quantified as follows:

1)PO3a (national payment envoy): Extrapolating from the case of the UK’s Small Business Commissioner, such an office will pose a recurring cost on Member States of EUR 11.8 million per year.

2)PO3b (national mediation system): the Commission launched in 2023 a pilot project to design and implement mediation in the construction sector 124  in Belgium. Extrapolating from this pilot to all sectors and all EU Member States, we can estimate a recurring adjustment cost on Member States per year of between EUR 10.8 million and EUR 39.8 million. The difference mainly stems from whether companies’ access to mediation is fully covered by the state (in compliance with state aid rules) or some cost would remain to be borne by the companies using the mediation service.

223.For both PO3a and PO3b, a few Member States already have such bodies or systems in place. However, as this is only the case for a few Member States, for the analysis of costs we stick to the maximum cost, so as to use a conservative estimate and rather overestimate than underestimate the true costs.

224.In addition, there are some one-off costs on public authorities in Member States to specifically address the question of unfair contractual terms and practices through their applicable national law. These one-off costs are estimated to be limited and can be covered by public authority staff under a ‘business as usual’ scenario.

6.2Social impacts

225.All policy options will have a social impact, particularly on employment, fairness in business culture and wellbeing of entrepreneurs.

226.A reduction in late payment as estimated under all policy options above could lead to an increase in employment. The evidence for each day of reduced late payments is difficult to directly quantify. However, assuming the figure of 6 million jobs if all payments were made on time (see section 2), the estimated reduction of 23.4% under PO1a could lead to an increase in employment of nearly 1.5 million jobs, with the other policy options leading to correspondingly smaller increases. However, as it is up to the company to decide how to make use of the increased cash flow, and as some jobs may be safeguarded from reduced risks of bankruptcy, it is not feasible to provide a precise number.

227.Some social impacts are not possible to quantify. One of the main responses by entrepreneurs when asked about the impact of late payments is the effect it has on their wellbeing. For example, 92% of respondents in the SME panel responded that late payments affect their well-being, generate stress and anxiety. Similarly, the report of the UK’s Small Business Commissioner raises the frequency with which mental health impacts were raised by businesses requesting their services.

228.Late payments also have a direct, albeit non quantifiable effect on entrepreneurship. In as much as no specific data is collected for the impact of late payments, the fear of bankruptcy is one of the main barriers reported to start an entrepreneurial career and may be used as a proxy. For example, both in France and Germany over 40% of persons that see good opportunities would not start a business for fear it might fail 125 . 80% of respondents to the SME panel confirmed that late payment heavily affects the survival of their business.

6.3Fundamental rights

229.None of the policy options proposed will infringe on EU fundamental rights.

230.PO1 will limit the freedom to conduct business by affecting contractual freedom between businesses to set their own payment terms.

6.4Environmental impacts

231.None of the policy options will have a direct environmental impact. There might be some indirect effects, if prompt payments and the resulting higher cash flow allow companies to make investments in the green transition they would not otherwise have made. This effect is unquantifiable, however, as it depends on the company choice where to invest, which is not in the scope of the present initiative. To give some indication, in the SME panels, when asked whether late payments prevented their business from becoming more green, 28% of SMEs agreed, but 30% disagreed. Digital communication tools and certificates can help make deliveries of documents electronic and reduce the carbon footprint of mail deliveries.

232.None of the policy options will cause any significant harm to the environment.

7How do the options compare?

233.This section compares the policy options against the impacts on the key stakeholders (enterprises and public authorities) as well as against relevant objectives in terms of their effectiveness, efficiency and proportionality. The baseline is represented as 0, with options compared to the baseline represented by ‘+/++/+++’ or ‘-/--/---’ to show net positive or negative impacts compared to the baseline option, respectively. The net impacts are assessed through a comparison between benefits and costs; ‘+/++/+++’ therefore mean a net positive impact (i.e. higher benefits than costs), whereas ‘-/--/---’ mean net negative impact (i.e. higher costs than benefits).

7.1Comparison of options based on costs and benefits to enterprises and public authorities

Table 4: Summary of costs and benefits including net benefit/cost estimates