Staying ahead in a complex regulatory landscape

Predicting regulatory direction has always been difficult, but perhaps never more so than today. The challenge is uncertainty but also divergence. While there have always been differences in the regulatory environments around the world, today, countries and regions are heading in very different directions in some key areas.

A good example of where we see both divergence in approach and a high level of uncertainty is the issue of late payments. There’s no denying that late payments are a significant challenge for suppliers everywhere. Taulia’s latest Supplier Survey, which gauged the views of almost 12,000 respondents, found that over half of businesses are paid late by their customers on average. This places additional pressure on cash flow and working capital, adding to today’s macroeconomic environment challenges.

Last year, the EU proposed legislation designed to prevent late payments by introducing stricter enforcement measures and imposing a maximum payment term of 30 days. The European Parliament adopted the measure in April of this year; however, the path to adopting these changes has not been straightforward. In July, it was reported that the controversial package of new rules had been shelved after it failed to attract sufficient support from EU member states. In October, Global Trade Review reported that the Commission is expected to introduce an alternative text at a later date.

Without an official announcement, it is currently unclear whether the regulation has been withdrawn or will be amended and finally passed. Either way, the proposals have prompted many questions from our customers.

The story so far

The existing EU Late Payment Directive, adopted in 2011, attempted to address the challenge of late payments, but many argued that it had significant shortcomings, including a lack of monitoring tools and enforcement mechanisms.

The amendments, which were first proposed by the European Commission (EC) in September 2023, aimed to revise the existing Directive with tougher rules and stricter penalties for late payment, such as:

• The introduction of a single maximum payment term of 30 days, which is down from the current 60-day term.
• A requirement that interest for late payments is calculated daily and added to the amount due.
• Making the payment of interest automatic and compulsory until payment of the debt.
• Removing any ability for the creditor to waive its right to claim interest for late payment.

While it may have been well-intentioned, the new package also prompted several concerns about the impact of these requirements on both buyers and suppliers. For one thing, a one-size-fits-all approach ignores the prevalence of longer payment terms in certain sectors, such as mining and construction. In addition, some suppliers actively choose to offer longer payment terms as a competitive differentiator.

As well as restricting the freedom to negotiate payment terms, there was some concern that the proposed rules could prompt corporations to renegotiate prices with their suppliers. Likewise, European businesses argued that the new rules could place them at a disadvantage compared to non-EU competitors.

The introduction of mandatory 30-day terms could also significantly threaten the viability of supply chain finance programs. These programs provide an especially useful lifeline for small and medium-sized businesses looking for flexible and affordable financing options such as early payment programs; tighter regulation could mean they lose this flexibility.

The bigger picture

Beyond the EU’s Late Payment Regulation, efforts are underway in other jurisdictions to tackle the challenge of late payments and remove friction from invoicing and payment processes. In the UK, for example, developments include replacing the Prompt Payment Code with a new voluntary Fair Payment Code. Under the new Code, businesses can apply for Gold, Silver, and Bronze awards. The Gold Award is given to firms that pay at least 95% of invoices within 30 days.

The UK is also introducing new reporting requirements, which build on the existing Reporting on Payment Practices and Performance Regulations 2017. While the new rules are intended to increase transparency around companies’ payment practices, approval has not been universal: The Institute of Chartered Accountants in England and Wales (ICAEW), for example, has questioned the appropriateness of the annual report as a vehicle for public policy objectives.

Meanwhile, global efforts to further the adoption of e-invoicing also have a role in addressing the late payments challenge by improving payment efficiency. In Latin America, for example, many countries have adopted regulatory frameworks for e-invoicing or Continuous Transaction Control (CTC) systems, which not only tackle tax evasion but also increase the efficiency of invoicing processes. Meanwhile, the Federal Reserve is working with the Business Payments Coalition (BPC) to promote the adoption of e-invoices in the U.S.

E-invoicing is certainly a powerful tool that helps speed up invoice approval while reducing errors and delays. However, as a report by the EU Payment Observatory notes, “e-Invoicing has great potential to improve payment efficiency, yet it doesn’t necessarily improve payment behavior.” As such, it should be seen as a “powerful complement to regulatory intervention” and not a standalone remedy.

What next?

The regulatory landscape is nothing if not complex. As the recent developments in Europe have shown, the path to adoption isn’t always straightforward — adding to the difficulties businesses may face in navigating these changes. But with the right support and expertise in place, businesses can ensure that they are in the best position possible to mitigate against the risk of changes and adapt when they arise. Digitization can do much to help businesses streamline processes, increase efficiency, and minimize regulatory risks. It is also crucial, however, that any solution provider also comes with the expertise to help you leverage the tools you have in the right way and can be the long-term partner you need to move with you through this evolving landscape. This requires not just technical expertise and a wider understanding of your ecosystem but also a global outlook that helps you navigate the diverging paths of financial regulation.

To find out more, read Taulia’s latest white paper, Direction of travel: Mapping the global regulatory landscape in 2025 and beyond.