The new European Directive 2011/7/EU introduced important legal changes in its effort to combat late payments in commercial transactions. Soon after, the Directorate-General of Enterprise and Industry of the European Commission (ENTR) commenced its Late Payments Information Campaign in the member states. A seminar was held in Athens in hotel Hilton at the27th of June, 2014 in order to highlight the actual size of the problem of late payments between i) businesses (B2B) and ii) between public authorities and other entities.
Economic & Financial Approach
Inability or unwillingness to pay on time? To those who view late payments as a cash-flow necessity and particularly in the sensitive Healthcare sector, we could say that the late payment, even in times of economic welfare, is a widespread practice in EU. Generally, payment periods in the public sector are longer than those in private sector contracts.
The European Commission, investigating the main causes, has reached the conclusion that the late payment is not only due to weakness and inability of debtor to pay, but also due to unwillingness to pay on time.
And that even goes for cash-strapped Greece, where the problem of late payments is most prevalent in the EU. According to 2014 figures, in commercial transactions with Greek public authorities the duration of the average payment in days is 155; in commercial transactions between businesses, the average duration for payment in days is 76. By contrast, the averages in the entire EU area for payment delays in commercial transactions with public authorities is 58 days while between businesses, the number of days goes down to 47.
The problem has of course skyrocketed in the years 2013, 2014 for Greece, due to the general economic conditions. The problem is that late payments have a chain-reacting, negative impact creating vicious cycles in the real economy and in particular:
- Liquidity problems – especially in times of economic distress, where access to capital is extremely difficult
- Difficulty in revenue forecasting and investment decisions for all businesses
- High cost in time and money
- Reduction in turnover
- Bankruptcy risks particularly for SMEs
- Consequential loss of jobs and
- in a globalized environment, negative spill-over effects to cross-border trade.
This new directive has been incorporated into Greek law with the Law 4152/2013 and Law 4254/2014, mainly making the distinction a) between businesses and b) between businesses and public authorities.
The most important changes introduced are the following:
- the increase of the reference interest rate from 7% to 8% plus the ECB rate
- the obligatory nature of interest payments in case of a late payment, something which excludes any differing contractual arrangements that are a priori deemed null and void
- the 30-calendar-day limit between the receipt of the invoice or equivalent and the payment (excluding public procurement contracts where the limit goes up to 60 calendar days)
- the possibility to withhold ownership of the sold item until payment
- the issuance of a title executable immediately within 90 days from filing at court and finally,
- the introduction and legislation of Judicial Mediation as an out-of-court means to solve differences.
Comment by our Office
Obviously, European legislators have made an important effort through Regulation 2011/7/ΕU to address the economic and financial damage caused by the delay in payments, especially to the SMEs. However, even though this Directive has been fully incorporated into Greek law since March 2013, delay in payments continues to be a major negative force, especially in healthcare, where delays often reach 450 days or more. We therefore expect a more “European” stance of the Greek Courts on this issue, given that the legal toolbox is already in our hands.
Published on Pharma Journal on July 8 2014