A ladle of ... Late Payment Regulation

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.

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.