Across The European Union many large companies put pressure on their suppliers to extend their period for payment. Especially for small suppliers, offering long periods for payment can have a critical impact on their cash flow and possibly on their ability to stay in business. Furthermore, small suppliers accepting long periods for payment is often a sign of inefficient contracts, as the contracting parties should instead lower the price. It is not clear why small and medium sized suppliers continue to extend their periods for payment, when it can in fact lead to their bankruptcy, or why large buyers continue to demand these long terms, when it is inefficient. Overall, market power and transaction costs seem to be the two fundamental explanations. Partly as a reaction to the above, the Commission put forward a suggestion for an amendment to the Directive on Combating Late Payment in Commercial Transactions in 2009. The new directive 2011/7/EF entered into force on the 15th of March 2011. The aim of the directive is to protect small and medium sized companies and to ensure the functioning of the internal market in accordance with article 114 of the Treaty on the Functioning of the European Union. Article 3(5) of the new payment directive states that Member States shall ensure that the period for payment fixed in the contract does not exceed 60 calendar days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor. Depending on its implementation in the Member States, this article will hopefully support the small and medium sized suppliers in combating long and unfair payment terms. In Denmark, the new article calls for an amendment of the existing “Rentelov”. As a result of article 3(5) the freedom of contract between corporations is restricted. The restriction though is not absolute, as the companies can still agree on a period for payment exceeding 60 days, as long as it is not grossly unfair to the creditor. Hence the extent of the restriction will eventually be determined by the national courts. Harmonization of the rules regulating payment terms agreed between companies in all of EU leads to an increased incentive for companies to do cross border trade, as it simplifies contracting across borders.
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