This content is from: Local Insights

Late payment of commercial debts

Starting from January 1 2013, sellers of goods and suppliers of services in Italy finally have more stringent terms under which to obtain the payment of their invoices by the relevant debtors.

The new terms of payment of commercial debts have been introduced by Legislative Decree No 192 of November 9 2012 to implement EU Directive EU/7/2011 and amend the previous rules contained in Legislative Decree No 231/2002.

Briefly, the new provisions which became effective from the beginning of this year reduced to 30 days the maximum period for the payment of supplies of goods and services to the public and private sector. This period may be extended to a maximum of 60 days in limited cases. In the event of late payments, interest on arrears will become payable automatically without the need for a formal notice and irrespective of the fact that a grace period for payment is provided in the contract.

The Decree also provides for an increase of one percentage point (from 7% to 8%) of the margin applied to the 'reference rate' – used to determine the interest in arrears – being the interest rate applied by the European Central Bank to its most recent main refinancing transactions.

The new provisions represent an important step in the process started by the Italian government aimed at increasing the liquidity of the economic system.

In this respect, in fact, other initiatives have been recently adopted by the Italian government such as the creation by the Ministry of Economy and Finance, through ministerial Decrees, an electronic platform which should allow a smooth and clear certification of commercial claims towards public debtors for a subsequent assignment to financial institutions.

The new law has, however, some gaps and weaknesses which could affect its true effectiveness.

First, it does not seem to be intended to effectively discourage late payments, considering that any enforcement towards public administration, save in certain cases, can be validly initiated only when 130 days have elapsed since a payment injunction is served on the public debtor; and public entities have no funds in their budgets due to the lack of transfers by the central government. Public entities may not therefore have an incentive to make timely payments, as late payments could always represent an alternative source of funding whose cost is at the end put to the charge of the community.

Secondly, public entities will need to adjust quickly their internal accounting procedure so as to be able to make timely payments in compliance with the new terms. The operation could generate further delays, duplications of payments and consequently additional costs.

Thirdly, a large number of credits are excluded from the application of the new provisions. Decree No 192 does not apply to claims arising from public works contracts which represent the most important segment of the public debt. The payment term and the interest rate for late payments of those credits still continue to be governed by the Italian Code of Public Contracts as well as by other specific provisions which are more favourable for public entities.

Finally, the ministerial Decrees for certification of claims and Decree No 192 are not fine tuned. The mechanism for the certification of claims introduces an additional period of 30 days to the payment term of 30/60 days thus derogating the more stringent payment terms contained in Decree No 192.

Susanna Beltramo and Francesca Ceccobelli

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