A ladle of ... Late Payment Regulation

New trends are constantly shaking up the industry – we track them down. In our series ‘A ladle of...’ we periodically present exciting projects and personalities from the food and gastronomy scene and discuss what is keeping the industry busy. Dr Basak Babaoglu De Bruyne, Manager Public Policy EU at METRO AG in Brussels, explains what the late payment regulation is all about.

MPULSE Series - A ladle
A calender and and a clock  - Late Payment Regulation

What's it all about?

  • What does Late Payment Regulation mean?
  • Impact on wholesalers and METRO customers
  • Why the draft would be critical for business in the EU

Today’s 3-question interview is with Dr Basak Babaoglu De Bruyne, Manager of Public Policy EU at METRO AG in Brussels, on the EU Commission proposal on "Late Payment Regulation" from September 2023, which, if adopted by the European Parliament and the Council would also have a significant impact on the gastronomy sector.

Basak, Late Payment Regulation - sounds cumbersome. In simple terms: What's it all about?

Oh yes, an unwieldy word, that's right 😉 The aim of this draft regulation is to protect and improve the liquidity of small and medium-sized enterprises - so-called "SMEs". If business-to-business invoices are paid late, SMEs may have to declare bankruptcy and lose employees due to the financial losses. The EU therefore plans to reduce the payment period for all B2B (business-to-business) invoices to a maximum of 30 days without any exceptions. Currently, this period can be extended to 60 days or more for non-perishable products. The trade sector also has the option and flexibility to negotiate individual payment terms with its customers in order to better meet their needs.

According to calculations of EuroCommerce (the association of retail and wholesale businesses in the EU), the regulation would create a financial gap between 100 to 150 billion euros for the sector.

Shortening the payment period sounds like a problem. To what extent would the regulation have a negative impact on wholesalers and METRO in particular?

To be honest, it seems as if this draft regulation has not been thought through to the end.

Inflexible and short payment terms generally deprive companies of liquidity. Wholesalers like METRO usually mutually agree on flexible payment terms with their suppliers. This is because some seasonal products are only sold at a much later date, or because some products are very expensive and are therefore bought less frequently by customers. Our suppliers therefore deliberately grant us long payment terms for non-food items with a long shelf life and seasonal items, such as Christmas decorations, due to the long production and storage times before the actual start of sales.

If every invoice for every product ordered would have to be paid immediately after 30 days, purchasing costs and sales revenue would therefore no longer balance each other out. Wholesalers would have to make a stricter selection of the products they buy and offer, leading to less choice on shelves and probably fewer stores. Purchasing costs and debt would increase at the same time and less resources could be invested in the sustainable and digital transformation of companies like METRO, for example. This is the view of the relationship with the supplier. The view of the relationship with the customer looks like this: If METRO could no longer offer its customers flexible payment terms, this would significantly affect our competitiveness and that of SMEs.

And what exactly would be the impact on small and local businesses, such as restaurants, which are core B2B customers of METRO in many countries?

If small businesses such as local restaurants can no longer negotiate flexible contracts with their partners, such as wholesalers, but also small suppliers, many of these businesses may face bankruptcy. They also depend on longer payment terms in order to have liquidity. SMEs are already struggling with access to finance today, where high food and energy prices have become the new normal.

Smaller businesses in particular in the gastronomy sector, have been hit hard by the after-effects of the coronavirus pandemic and high inflation. In Germany, restaurants also have to face the renewed increase in VAT to 19 per cent. Such legislation could therefore have the unintended effect of accelerating bankruptcies for SMEs. Especially in times when Covid loans are due to be repaid.

All in all, this regulation would do more harm than good to all companies in the EU, big or small. The problem of late payment - which is a breach of contract - cannot be dealt with by mandating shorter payment terms. This is why we at METRO reject this type of regulation within the EU. We ask the European Parliament and the EU member states to work together with the trade sector: We must find more sensible solutions to the problem of late payment. Freedom of contract between companies must be maintained to ensure fair competition within the EU.

Default interest and competitiveness

Critical points of the draft:

Why entrepreneurial freedom should be preserved by waiving default interest and flexibility to agree on payment terms, why the draft would favour non-EU online platforms.

👉 On our politics website, you can read more about METRO’s position on the Late Payments draft.

About… Dr Basak Babaoglu De Bruyne

Başak Babaoğlu De Bruyne has been working at the Brussels Representative Office of METRO AG since November 2016 as Manager of EU Affairs. Before joining the Brussels Office, she worked as the Ankara Representative of METRO AG in Turkey as part of the Public Policy team from 2011 until 2016. Previously, she worked as a freelancer on management of EU-funded projects in Turkey on environmental and justice and home affairs issues, together with the “Gesellschaft für Internationale Zusammenarbeit”, the Turkish Ministry of Environment and the Turkish National Police.

Başak holds a PhD, as well as an LLM degree in Law and Economics, from the University of Hamburg, a graduate degree in European Studies from the Istanbul Bilgi University, Turkey, and the Leiden University, Netherlands. She also holds a Bachelor’s degree in Economics from the Middle East Technical University in Ankara, Turkey.

In her current role, Başak follows the political and regulatory developments in the EU, mainly in areas related to food, non-food, environment and international trade and represents METRO AG at various stakeholders.

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