According to the Commission's information, Italy is not applying the Directive correctly in practice. The Commission has received a number of complaints which highlighted the fact that in Italy the public authorities take on average 170 days to make payments for services or goods provided, and 210 days for public works. Moreover, some Italian public bodies use contracts that apply interest rate terms to late payments which are clearly lower than the interest rate required by the Directive (which must be at least 8% above the European Central Bank's reference rate). The Commission was also informed that some Italian public bodies postpone the issue of work progress reports in order to enable them to delay payments that are due to be made to companies performing public works.
According to the Commission's information, Slovakia has not implemented the Directive correctly in its national legislation. In particular, Slovakia provides for a dual system for late payment interest rates, a fixed one and a variable one. In the case of a fixed rate, the debtor will have to pay late payment interest equal to the base interest rate of the European Central Bank (ECB), increased by 9%. In the case of a variable rate, the debtor will have to pay late payment interest equal to the ECB base rate, increased by 8%. If the creditor has not explicitly requested any of the two rates of late payment interest, the fixed rate takes precedence. The Commission has doubts on the compatibility of this system with the late payment directive.
Major obstacle for Single Market
Late payments constitute a major obstacle to the free movement of goods and services in the Single Market. They can impede cross-border trade and distort competition. Every year European businesses go bankrupt waiting for their invoices to be paid. Late payment has therefore a negative effect on the entire European economy.
The Late Payment Directive can be of considerable help to companies, especially small and medium sized enterprises (SMEs) which constitute 99% of all EU businesses. Adopted in 2011, the Directive responded to a real need to switch to a culture of prompt payment.
The Directive's correct implementation and application in practice are particularly important to the proper functioning of the economy. A correct application of the Directive should unlock the cash flow to European enterprises and help them overcome the economic crisis.
EU countries agreed to incorporate the Directive's requirements into their national laws within two years of its adoption, ie by the 13th March 2013.
Next steps
Italy and Slovakia have two months to react to the Commission's warning. If information received by Member States is regarded as insufficient, the Commission may find that the Member States are in breach of EU law and must do rapidly remedy that breach. At that point the Commission would then issue a "Reasoned Opinion" in accordance with Article 258 of the Treaty on the Functioning of the European Union. Failure to comply with the latter can lead to the case being referred to the European Court of Justice and the eventual imposition of fines.
Background
Directive 2011/7/EU (a recast of Directive 2000/35/EC) on combating late payment in commercial transactions aims to remove a major obstacle to the free movement of goods and services. The Directive contains, amongst others, the following measures:
- Harmonisation of the period for payment by public authorities to businesses: public authorities have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days. It is estimated that correct application of this rule would mean that additional liquidity amounting to almost €180 bn would be available to businesses.
- Contractual freedom in businesses' commercial transactions: enterprises must 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 payment and in addition will also be able to obtain a minimum fixed amount of €40 as compensation for recovery costs. They can claim compensation for all remaining reasonable recovery costs.
