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A European Parliament committee is pushing for greater flexibility around incoming EU late payment rules, after fears the initial proposals could sink the continent’s burgeoning supply chain finance (SCF) sector. 

The European Commission proposed in September to limit all payment terms to a maximum of 30 days, prompting outcry from industry groups fearful that the new rules would make it commercially unviable for lenders to fund SCF facilities. 

Following several months of lobbying efforts, the parliament’s Internal Market and Consumer Protection Committee voted last week to soften the proposals, so that payment terms could be extended for up to 60 days if contractually agreed. 

For “slow moving or seasonal goods”, companies would be able to extend terms up to 120 days, the committee’s draft adds. Its position is subject to a full European Parliament vote in late April, before a final text is agreed through negotiations with the European Commission and Council. 

Sean Edwards, chair of the International Trade and Forfaiting Association (ITFA), welcomes the development, telling GTR: “We believe that, following lobbying by ITFA and others, we are in a much better position with the latest draft of the regulation. 

“An increase to a 60-day payment implicitly recognises that supply chain finance must have space within which to work, and it undoubtedly has beneficial effects for both sellers and buyers.” 

However, Edwards says the committee’s proposals still risk restricting liquidity and interfering with companies’ contractual freedoms. 

“A requirement that extensions beyond a given period would be permissible if not grossly unfair, taking into account the availability of SCF, would have been a better way to go in our view,” he says. 

Edwards adds that the proposed exceptions for slow-moving and seasonal goods could prove “difficult and bureaucratic to implement”. 

“Is ice cream slow-moving in the winter but fast in the summer, for example? In any event, we understand that further changes are likely when this is discussed in the Council,” he says. 

The proposed reforms update EU-wide rules finalised in 2011, which limit payment terms to 60 days but give commercial parties the freedom to agree on longer terms. 

The overhaul follows widespread concerns that suppliers, particularly SMEs, are suffering due to late payment by their buyers. Research by Taulia published earlier this month found that 51% of companies polled are typically paid after the due date on their invoice – up from 36% just two years earlier. 

Usage of receivables and payables financing programmes has grown rapidly in recent years. Such programmes, known collectively as SCF, typically allow a supplier to take early payment on invoices from a third-party lender, while the buyer is given longer to repay.  

In many cases, buyers can also benefit by having payments due removed from their balance sheets, while suppliers can gain a more favourable interest rate by leveraging the credit rating of a larger buyer. 

The volume of such transactions exceeded half a trillion euros last year in Europe alone, according to research by Lendscape and BCR. 

But industry groups argue that shortening terms to 30 days means SCF lenders would see their returns slashed, potentially removing any incentive to offer programmes in the first place. 

Not only would that stifle a growing European industry, but could also force companies to seek more costly financing elsewhere, critics say. 

Speaking at last week’s FCI European Factoring Summit in Vienna, Christian Hausherr, chair of the Global Supply Chain Finance Forum, said that outcome would be “exactly the opposite of what we wanted to accomplish”. 

“At the end of the day, the whole financing process is going to be more expensive,” he said. “That does not really make sense in my view. There would be more funding cost and it would be visible on the buyer’s balance sheet.” 

Niccolo Ciulli, advisor for competitiveness and commercial relations at retail trade association EuroCommerce, acknowledged there could be instances where a buyer has significant bargaining power over its supplier, and so pushes for longer payment terms than are acceptable. 

“But there are also situations in which there are companies of the same size or with the same bargaining power, small-and-small, large-and-large, where there is no bullying and where negotiating payment terms may be a win-win situation,” he said at the same event. “That’s what we want to preserve.” 

Also speaking at the FCI event, European Commission policy officer Antonella Correra called on the industry to provide “compelling evidence” of solutions that are “in the interest of all parties and minimise the risk of abuse”. 

Additional reporting by Jacob Atkins.