7 Colum. J. Eur. L. 293 (2001)
Sophie A. Hausler.
The directive combating late payment in commercial transactions represents yet another example of the European Union’s influence on the contract law regimes of EU Member States.
Efforts to arrive at Community legislative action on the subject of late payment reach back as far as 1994, when the European Parliament, in connection with its resolution on the integrated program in favor of small and medium enterprises (SMEs), asked the Commission to submit proposals to deal with the problem. In reaction, on May 12, 1995, the Commission adopted a recommendation on payment periods in commercial transactions. However, a Commission report on late payments in commercial transactions published on July 17, 1997, as well as recent statistics, made clear that the Commission recommendation had not achieved the desired effect. The serious problems that led to the Commission’s activity had not been alleviated. Thus, in March 1998, the Commission adopted a proposal for a Directive to combat the problem of late payment.
The economic rationale for the adoption of Community legislation in this area lies in the fact that European businesses, particularly small and medium-sized ones which are more vulnerable to irregular cash-flows, are confronted with heavy administrative and financial burdens resulting form excessive payment periods and late payment. In fact, these burdens are a major cause of insolvencies, thus threatening the survival of businesses and resulting in considerable job losses. Apparently, one in four insolvencies is due to late payment, which in turn leads to the loss of 450,000 jobs each year, thus contributing to the high level of unemployment in Europe.
A need for harmonization arises because some Member States contractual payment periods differ significantly from the Community average. These differences in payment rules and practices threaten the proper functioning of the internal EU market. On the one hand, they may act as a deterrent for commercial transactions between Member States, because trans-border operations may entail greater risks for entrepreneurs than domestic sales. Research shows that more than 20% of European enterprises would export more if they were able to exclude late payments by their customers abroad. On the other hand, the application of different rules also leads to a distortion of competition. The directive is therefore based on Article 95 (ex Article 100a) of the Treaty Establishing the European Community (TEC), which aims at harmonizing national legal provisions that directly influence the establishment and the functioning of the common market. It was adopted pursuant to the co-decision procedure set out in Article 251 of the TEC.
Article I of the Directive describes the general scope of the Directive, while Article 2 sets out various definitions, which will be integrated into the discussion of the Directive’s other provisions. The core rules providing for the main instruments to combat late payment (payment of interest, retention of title and rapid recovery procedures for unchallenged claims) are found in Articles 3 to 5 of the Directive. Finally, Articles 6 to 8 contain technical provisions relating to the transposition, entry into force and addressees of the Directive.
According to Article 1, the scope of the Directive is as follows: The Directive applies to all payments made as remuneration for commercial transactions. In particular, the Directive does not regulate transactions with consumers, interest in connection with other payments or payments made as compensation for damages (such as payments from insurance companies). However, transactions including liberal professions are covered by this Directive as well as transactions between undertakings and public authorities.
