In Belgium we currently have a maximum payment period of 60 days, but if it is up to the EU this will change. There is currently a bill ready to use a maximum payment period of 30 days within the entire European Union. Especially for SMEs a positive development, but how do you deal with this as a company?
Power games
With the introduction of the so-called Late Payment Directive, the European Union wants to protect SMEs in particular from large corporations. SMEs are often very dependent on large orders from corporates. Also, SMEs are often not very liquid and due to the size of the orders they are often "forced" to agree to longer payment terms. Small companies then do not have the resources to get the large company to pay on time and quickly find themselves in financial dire straits as a result.
Late Payment Directive proposal
The proposal that is currently on the table boils down to the following four points:
- The maximum payment term is 30 days (currently 60), and this applies to the vast majority of transactions between businesses and between businesses and government agencies;
- Payment terms may not be extended arbitrarily; they can only be extended when it is reasonable for the creditor;
- A debtor is automatically required to pay interest on overdue payments. Additionally, a creditor cannot simply waive this interest for the debtor;
- Additional measures to protect creditors. All member states must appoint authorities responsible for strict monitoring and enforcement of this directive.
Current situation and new situation
Now if you do business in Belgium (so even as a foreign company) you are contractually allowed a payment period of up to 60 days. With the possible arrival of the new Late Payment Directive, this will be changed and all companies would have to pay within 30 days, which is twice as fast as now.
Next steps
There is a very good chance that this law will come into being, thus overriding the current Belgian legislation. What can you do to prepare for this change?
Conduct research on payment ethics
The payment morale of a company indicates how promptly a customer pays their invoices. Altares Dun & Bradstreet uses the D&B Paydex score for this purpose. It is based on millions of payment experiences and reflects how well a customer anticipates invoices. For example, a score of 100 means that a customer anticipates invoices excellently. A score of 50 indicates that a company is often up to 30 days late in paying an invoice. Analysis of thousands of bankruptcies from different countries shows a clear correlation between the risk of a company going bankrupt and the D&B Paydex score.
Read more: More information about the D&B Paydex
Send invoices promptly (with discounts)
Ensure that your invoicing system works well and that you can send invoices promptly (and automatically). Offer a discount on the invoice if it is paid more quickly. This incentivizes companies to pay their invoices faster.
Screen new customers for financial health
When new customers approach your company, it is wise, when they want to place an order, to conduct an investigation into their financial health. This can be done, for example, by using D&B Finance Analytics. A platform where you can find financial information about more than 500 million companies worldwide. Based on over 30,000 data sources, a credit limit is provided, you can view the Paydex, and you can find even more financial information. This way, you can be sure whether the new customer can pay the invoice and whether it will happen on time.
Interesting read: Credit Risks: To take, avoid or insure?
In general, the proposal for a new Late Payment Directive is a positive development, although many companies are far from ready for this change. However, we strongly recommend setting up the processes in the credit department in such a way that you are prepared when the new shorter payment term comes into effect. Do you have any questions or comments about payment terms as a result of this blog? We'd be happy to assist you. Fill in the form below, and we'll get back to you.
