The new EU Directive on combating late payment in commercial transactions is expected to alleviate liquidity problems, faced by small and medium sized enterprises (SMEs) and boost their competitiveness, at a time of unprecedented economic crisis in the EU.
According to the latest figures from the European Payment Index 2012, the written off debt suffered by Europe`s businesses has grown to 2.8% of total receivables, to reach the unprecedented level of €340billion. An amount of 3.3 billion was lost in Cyprus in the past twelve months due to late payments, an increase of 50% on payment loss in 2008, according to the same Index.
The data was presented today at a seminar hosted by the EU Commission Representation in Cyprus on the late payment Directive.
Head of the Representation Georgios Markopouliotis said that 57% of the European businesses claim to have liquidity problems due to late payments, an increase of 10% since last year, and every day across Europe, dozens of SMEs go bankrupt as their invoice are not paid.
In the south, business to business transactions are paid in 91 days time on average, while in northern countries it takes 31 days, according to Markopouliotis.
These practices harm the Single Market, aimed to offer businesses and entrepreneurs equal opportunities in all countries of the EU, he noted.
He stressed that the Directive is an important tool in order for the SMEs, which account for 99% of the European companies and employ 67% of the European workforce, to continue supporting the efforts for growth in the EU.
Deputy Director-General of the Enterprise and Industry Directorate-General of the EU Commission, Antti Peltomäki, said that thanks to this measure additional liquidity amounting to 180 billion euro per year is expected to be available for the businesses. Incorporating the Directive into the national legal systems of the EU, member states will enhance growth and boost competitiveness, Peltomäki noted, adding that late payments in commercial transactions are a major obstacle to the free movement of goods and services in the Union.
Director of Industrial Development of the Cyprus Ministry of Commerce, Giannis Kontos said that as a result of the cash flow problem faced by the SMEs they are forced to borrow with unbearable terms and interest rates, which in most cases lead to their decline, suspension of their operation and inability to pay their loans.
The late payment Directive will put an end to overdue payments, help SMEs to improve their liquidity, improve their competitiveness and enhance healthy competition in favor of the consumers’ interest, he noted.
Cyprus transposed the EU Directive into its national law last July, becoming the first member state to do so.
According to the Directive, public authorities must pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.
As far as business commercial transactions are concerned, enterprises should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.
Enterprises are automatically entitled to claim interest for late payments and can obtain a minimum fixed amount of 40 euro as compensation for payment recovery costs. They can also claim compensation for all remaining reasonable recovery costs.
The statutory interest rate for late payment is increased to at least 8 percentage points above the European Central Bank’s reference rate. Public authorities are not allowed to fix an interest rate for late payment below this threshold. In Cyprus the interest rate for late payment has been set to 9%.
