On 16 March 2021, the then Dutch government submitted a bill concerning the payment term that large enterprises can use in their commercial relationship with small and medium-sized enterprises (SMEs). This term will be shortened from a maximum of 60 to 30 days. The bill is the result of the evaluation of the Payment Terms Act from 2017.
Meanwhile (29 March 2022), the bill has been adopted by the Senate and the Lower House of Parliament. The new act entered into force on July 1st, 2022. A transition period of 1 year applies to bring existing agreements in line with this amendment.
Why was a law amendment considered necessary?
The government considered this bill necessary because it appears that SMEs often agree to the then current maximum payment term of 60 days out of fear of losing customers. However, the starting point should be a payment term of 30 days. This appeared to be the exception rather than the rule. Therefore, it was believed that the then current scheme protects the interests of SMEs insufficiently. During the corona crisis the government has noticed again that (potential) financial distress urges businesses to use their negotiating position to their best advantage by agreeing on long terms of payment and sometimes even exceeding those, with all the associated negative effects for SMEs.
What will change exactly? When is an enterprise large and when is it an SME?
The bill intends to change this situation by amending Section 6:119a of the Dutch Civil Code (DCC), in which a final payment term of (in principle) 60 days was set out. This maximum payment term is now shortened to 30 days. The extent of applicability of the maximum payment term in this Section remains the same. It applies to a trade agreement for the supply of services or goods in which a large enterprise acts as the debtor and an SME acts as the creditor (Section 6:119a subsection 6 DCC).
If Dutch law applies, this regime applies also if one or both parties are companies domiciled abroad. It does not seem to be the case that a large company, by the applicability of foreign law, should nevertheless apply this payment term in an agreement to an SME registered in the Netherlands if a choice of law was made for foreign law, since the law does not provide that this is a special regulatory rule.[1] Incidentally, it follows from the Explanatory Memorandum that two Dutch parties cannot escape the applicability of this rule by agreeing on a choice of law for foreign law.
For the definition of a large enterprise, the criteria from accounting law (Sections 2:395a up to and including 2:398 of the Dutch Civil Code) are applied. In short, a large enterprise is a legal entity which on two consecutive balance sheet dates – consolidated or not – satisfies two or three of the following criteria:
- a value of the assets according to the balance sheet of more than €20,000,000;
- a net turnover for the relevant financial year of more than €40,000,000;
- an average number of employees during the financial year of more than 250.
Legal entities that do not satisfy two of these three criteria fall under the category of SME.
What is the consequence if a company fails to observe the statutory maximum payment term?
The payment term is of mandatory law; therefore the parties cannot deviate from it by contract. Payment terms of more than 30 days are null and void and will be converted, so that a payment term of 30 days applies after all. In the case of late payments, the SME will be able to collect the statutory (commercial) interest.
The ACM (Authority for Consumers and Markets) has opened a hotline
where SMEs can anonymously report large enterprises that do not comply with the statutory or agreed payment term (until January 25th, 2023). On the basis of the results of the hotline, it will be assessed whether public supervision as a supportive measure is desirable.
What can you do as an enterprise?
Are you about to conclude a new agreement, and are the parties to this agreement a large enterprise and an SME, you may already want to anticipate on this law amendment by including a payment term of 30 days.
Moreover, your enterprise may already map out whether there are any existing agreements that fall under this regulation, which contain a payment term of more than 30 days. During the transition year, you might in any case use the opportunity of an extension or other amendment of the agreement to adjust the payment term at once.
Finally you will have to ensure that, if this obligation of a payment term of 30 days applies to you, the internal financial authorization processes are organized in such a way as to allow payments to actually be made within this term.
Do you need help with this or would you like to learn more about this topic?
Please do not hesitate to contact Sabina Kloppers.
Footnotes
[1] This is different for the Unfair Commercial Practices in Agriculture and Food Supply Chain Act; in this case it is unlawful for a customer to whom this Act applies to perform the commercial practices set out in this Act (including using a payment term of longer than 30 days after delivery of perishable products, and a maximum of 60 days after delivery of non-perishable products), even if it has been agreed with the other party that the law of another country applies to their mutual agreement. Later payment will by definition constitute an unlawful act by the customer vis-à-vis the supplier.
