The European Commission’s proposals to limit payment periods between companies to a maximum of 30 days challenges the fundamental principles of the EU’s market economy. With the intention of creating a more level playing field, for small businesses in particular, this one-size-fits-all approach instead risks limiting the flexibility and adaptability of all businesses, resulting in increased operational and financial burdens and undermining companies’ international competitiveness. Confederation of Swedish Enterprise calls for a review of the proposal to ensure a dynamic and competitive European economy for companies of all sizes.
In September, the Commission presented a legislative proposal that – if implemented – would mean that buyers and suppliers would no longer be able to agree between themselves on payment periods longer than 30 days. Confederation of Swedish Enterprise sees serious flaws in the proposal and believes that it seriously risks undermining core economic principles that form the basis of a healthy and dynamic market economy within the Union.
Firstly, the Commission’s proposal runs contrary to the principle of subsidiarity and proportionality laid down in the EU Treaty, which emphasizes the importance of decisions being made as close as possible to parties affected by them, and that rules must not be more intrusive than necessary to achieve their goals. This means that Member States themselves must retain the right to address issues that are most effectively dealt with at national level. Existing systems for dealing with late payments work well in many Member States, making the Commission’s proposal unnecessarily intrusive and indeed potentially harmful. The proposal imposes a one-size-fits-all that fails to take into account that the EU market is made up by thousands of highly different economic sectors and unique company structures.
Furthermore, the proposal constitutes a serious interference in freedom of contract, a fundamental principle that gives companies the right to independently negotiate and enter into agreements with conditions – including payment terms – that best suit specific circumstances and individual contractual relationships. Freedom of contract is essential to maintain a flexible economy in a market characterised by a high degree of variation in terms of company size, sector and financial capacity. Regulation of payment times overlooks these differences and forces companies, regardless of their unique circumstances and needs, to adapt to one and the same blunt model. This is especially problematic for industries where longer payment times are the norm and necessary due to the length and complexity of projects, for example in the construction sector. The same applies to the consumer goods sector, for example among furniture stores and garden centres that typically need to hold large amounts of stock. A substantial proportion of these companies are small or very small.
The implementation of the Commission’s proposal would have far-reaching operational and financial consequences for companies in all categories. A rigid 30-day limit on payment terms would significantly limit companies’ ability to quickly and flexibly adapt to market conditions. Such adaptability is key to successfully navigating a landscape characterised by constantly changing market trends and unforeseen economic circumstances. A lack of flexibility risks making companies’ business models rigid and reduces their competitiveness, which can ultimately damage their position on the market.
Furthermore, to adapt to a new rigid payment period, companies would have to undergo significant administrative and operational changes, including the renegotiation of many existing contracts and the restructuring of their billing and accounting systems. This would create unnecessary administrative burdens and additional costs. Many companies may need to change their capital structures and turn to external financing, such as bank loans or other credit facilities, to maintain adequate liquidity and cash flow. This applies in particular to companies that need to maintain large stock levels and are unable to sell a given item within 30 days. The proposal thus means that a liquidity gap arises that needs to be filled. Increased dependence on external financing would result in a greater degree of indebtedness and increased financial risks and costs, which can be particularly concerning for companies that are already under considerable financial pressure, especially small businesses.
Another critical aspect that must not be overlooked is the potential impact of the proposals on the international competitiveness of EU-based companies. By imposing strict payment conditions, European companies are adversely affected in relation to their international competitors that are not bound by similar restrictions. Why should a US company buy from an EU company and be forced to pay for goods or services in 30 days if it can buy from China and pay in 90 days? EU buyers and suppliers would be at a significant disadvantage on the global market, making it difficult for them to attract international customers and business partners. In the long run, global sales and growth of European companies would be negatively affected.
In light of this, Confederation of Swedish Enterprise urges the European Parliament and the Council to thoroughly redraft the Commission’s proposal on payment terms. Such a revision should reintroduce respect for the differing needs of businesses and preserve the necessary flexibility for a competitive and dynamic market economy. Maintaining freedom of contract is not only a matter of respect for the self-determination of companies, it is also necessary to ensure that the EU economy remains robust and flexible enough to address contemporary challenges and seize future opportunities. By taking these issues into account, the EU will be able to ensure that its economic guidelines and rules strengthen – rather than limit – the European market’s potential for growth.EU