Shorter payment terms on the way for SMEs

Disproportionate power of large companies to be reined in

Starting from 29 April 2020, large companies will no longer be able to impose payment terms of more than 90 days on SMEs. In the past, large companies have sometimes taken advantage of their position of power over smaller contractors. Suppliers would be pressured to accept long payment terms of up to 120 days or more. Those who objected would lose out on major contracts. The new law of 29 May 2019 changes all that.

Please note: this information is no longer relevant. You can read all about the new legislation on the maximum payment term here.


Excessive payment delays for SMEs

The legal term for payment of invoices is 30 days. This will not change. However, companies are always free to set a different term by mutual agreement. This works to the advantage of large companies. But certain limits will now be imposed on this freedom. Following the new regulation from 2016, this is another step in the right direction.

Many SMEs would be thrilled to land a contract with a large company. Such contracts often represent a significant boost in turnover, which means that there is stiff competition for these contracts. This has placed large companies in a position of power, enabling them to demand excessive payment terms. A study carried out by UNIZO, Graydon and UCM revealed how difficult this can make things for SMEs. 65% of SMEs report that large companies pay their invoices later than they are supposed to.

This has regularly caused cash flow problems for SMEs. Payments received only after 120 days or more are no exception. As a supplier you somehow have to cover this several-month waiting period, while your own suppliers expect payment of their invoices within 30 days. In some cases, it can even be necessary to take out an expensive loan to make up for the shortfall. A solution such as factoring is also expensive.

Plus, as an SME you have to make your quarterly VAT payments on time. In other words, in the past, a contract with a large company often turned out to be a poisoned chalice. An SME would be forced onto thin ice financially before getting paid.


Never wait longer than 90 days for payment

Altogether, after 29 April 2020, the payment term may not exceed 90 days. The maximum period has been shortened to 60 days. An additional verification period may be added to check the invoice, of 30 days maximum.

Any new agreement that imposes a longer payment period will be invalid. After the period has expired, late payment fees can be charged.


For whom?

SMEs contracting with other SMEs remain free to negotiate a payment term. If no concrete agreements have been made, then the legal payment term of 30 days remains applicable. We recommend that you deviate as little as possible from the statutory payment term. Think carefully before accepting a longer payment term.

The government remains shielded from these changes. For contracts with a public authority, it will still be possible for longer payment terms to be applied. Unfortunately, therefore, the government has not taken steps to counteract its reputation for slow payment.

The purpose of the regulation is to limit the power of large companies over (much) smaller suppliers. Once a company meets 2 of the following conditions, it is considered a 'large company' and no longer an SME.

  • On average more than 50 employees (on an annual basis)
  • More than 9 million euros in annual turnover (exclusive of VAT)
  • A balance sheet total higher than 4.5 million euros

Does your company fail to meet at least 2 of the above criteria, while your customer does? Then, ordinarily, you should never have to wait longer than 90 days for payment.

What if something still goes wrong? Is your customer late with payment? Forward your claims to Unpaid. We'll make sure that you receive your well-deserved payment. Taking swift action against defaulters is the best guarantee that your future invoices will be paid on time.

Do you, too, want to deal with unpaid invoices easily, cheaply and efficiently? Then submit your first files today.

Do you have an unpaid invoice and do you have questions about the operation of Unpaid? Call +32 9 396 34 00 or let us know here when you want to be called.

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