EU Retailers Push Back Against 30-Day Payment Rule

European retailers are concerned about new rules requiring businesses to be paid within 30 days.

As the Financial Times reported Sunday (Oct. 1), retailers say the proposed regulations — designed to support small and midsized businesses (SMBs) — would drive up prices and push them to purchase more from China. 

“It does not come for free. It puts the cost somewhere else in the value chain,” Nick Lakin, head of corporate affairs at home improvement chain Kingfisher, told the FT. “This would ultimately have consequences for consumers in terms of product availability, choice and price.”

The European Commission proposed the new payment terms last month, saying in a news release that delayed payments were “an unfair practice that compromises the cash flow of [SMBs] and hampers the competitiveness and resilience of supply chains.”

The EC proposal also ensures automatic payment of accrued interest and compensation fees, the release said. It also introduces new measures to protect companies against “bad payers.”

“We need to step up our support for [SMBs],” EC Vice President Vera Jourova said in the release. “We want to make things easier for them, bring more oxygen to help them survive and thrive. Today we come with rules to ensure small businesses are paid in due time, to cut paperwork and to simplify taxes.”

According to the FT, Lakin said Kingfisher preferred 30-day payment terms for small businesses so as not to put “good suppliers under financial strain.” However, the company has negotiated variable payment terms across Europe of up to 60 days, or up to 90 days for suppliers in Asia.

The report also quotes Alisdair Gray, head of European affairs at European DIY retail association EDRA, who said home improvement stores already source at least half of their supplies from China.

“Businesses are going to buy more from China because they will give you 90 days,” he said.

And Christel Delberghe, director-general at Euro Commerce, the representative body for retailers and wholesalers, told the FT her group was “extremely worried.” 

“For example, if you’re a small clothing boutique, you buy your season in advance and usually pay your supplier over a certain period as you sell it. You don’t have the resources to buy the stock up front,” Delberghe said. “That will no longer be possible.”

As PYMNTS has written, slow payments are a major issue for SMBs around the world. For example, one recent study found customers owe 55% of SMBs in the U.K. between £10,000 and £75,000 in outstanding invoices each month, with 36% of these businesses saying these funds were necessary to remain afloat. Fifty percent of these SMBs said customers paid within 30 days, while one-third said they had to wait 60 days, and 14% said they waited at least 90 days.