A proposed overhaul of the EU’s late payment framework has fizzled out after member states failed to reach agreement on the Late Payment Regulation (LPR), which was first tabled by the European Commission in 2023. The incoming Danish Council Presidency has indicated that it will take no further action regarding the regulation, meaning that the legislative process has effectively concluded.

The original LPR proposal sought to replace the existing 2011 Directive with a binding regulation that would impose a maximum 30-day payment term on all business-to-business and government-to-business transactions. It also proposed enhanced penalties for non-compliance, alongside the establishment of dedicated enforcement authorities in each member state.

Citing evidence of “abusive” practices by large corporates extending terms unilaterally, the Commission pegged the regulation as a broader tool for rebalancing market power and improving SME competitiveness.

Many industry participants, however, expressed concern, warning that the proposal conflated long payment terms with late payments. They argued that the proposed regulation did not distinguish between bad practice and negotiated flexibility (which is vital for many companies). The universal 30-day cap was widely considered to be overly prescriptive, particularly for sectors with extended production and working capital cycles.

Analysis from members of the International Credit Insurance & Surety Association (ICISA) estimated the change would create a funding gap of nearly €2 trillion for SMEs, demand unlikely to be met through existing financing channels. If bridge financing could be sourced, ICISA noted, the resulting interest costs would introduce an inflationary dynamic across supply chains.

The proposal also raised broader questions about contractual autonomy. While some support existed for stricter enforcement of existing rules, most business associations (including EuroCommerce, which represents retailers and wholesalers) cautioned against removing the ability for counterparties to negotiate terms based on mutual needs and sector norms.

The European Parliament tabled a series of amendments in 2024, including more flexible terms (up to 60 days in certain circumstances) and a proposed exemption for an array of “slow and seasonal” goods, hoping that these would concerns about regulatory overreach. These proposed exemptions, however, did not go far enough.

By the time the file reached the European Council, opposition had hardened. Several member states expressing discomfort with how the proposed regulation would interact with existing national frameworks, many of which, they argued, are already well-functioning. Others raised objections on subsidiarity grounds, arguing that payment terms should not be governed by a single set of pan-European rules.

Despite efforts by the Polish Presidency to broker a compromise earlier this year, the Council’s working party on competitiveness and growth confirmed there was no pathway forward. The incoming Danish Presidency has indicated it will not revisit the issue, effectively closing the file.

While the proposed LPR is now off the table, the issue of late payments is still very much on the policy radar. Data from across the trade credit insurance sector point to lengthening Days Sales Outstanding (DSO) in multiple European markets, suggesting liquidity pressures that may require further attention.

Policymakers may now pivot toward narrower, evidence-led approaches. These could include improved enforcement of existing rules, targeted SME education on credit risk, and increased transparency around payment practices. Going forward, any attempt at reform will need to strike a more deliberate balance by addressing poor payment culture without compromising the commercial flexibility that many businesses rely on to operate.