Corporate │ M&A

Q&A New regulation against unreasonable long payment terms

By juli 1, 2017No Comments

Do you work at a large company and do you sometimes enter into agreements with smaller companies or self-employed professionals? On the 1st of July a new act will enter into force that may affect your purchasing policy. In this Q&A, we answer questions that are relevant to your practice.

What does this new act entail?

This act provides that large companies that buy goods or contract services from small businesses can agree on a payment period of up to a maximum of 60 days. The new act applies only in the relationship between large companies and SMEs or independent contractors. Large companies can still mutually agree on longer terms.

And why is that necessary?

The Dutch Parliament has noticed a trend of large companies extending payment terms. This is not beneficial to smaller companies, which, as a result, suffer from liquidity issues and may not be able to pay their suppliers in time.

What is a ‘large’ company?

A ‘large’ company meets at least two of the following conditions:

  • the assets on the company’s balance sheet represent a value of more than 17,5 million euro.
  • net turnover of more than 35 million euro per year.
  • more than 250 employees.

All other companies are qualified as ‘small’ companies for the purposes of this act.

What happens if a longer term is agreed?

In that case, the arrangement is void and is replaced by the legal payment term of 30 days. If the large company does not pay within 30 days, then the small entrepreneur may claim legal interest rate (per January 1, 2017: 8% per annum) over the overdue term.

What if the small entrepreneur offers a longer payment term?

It is the responsibility of the large company to prevent agreeing on longer payment terms.

We are a large company. By accident we have agreed on a too long payment term and we have not paid the invoice within 30 days. Is our supplier (small company) obliged to charge us for the legal interest?

No, that is not an obligation, but the small entrepreneur will keep his right to charge interest for five years. Most likely, he will try to preserve a good and stable trade relationship, but should any disputes arise, he may reconsider. If the company goes bankrupt, the trustee can claim the interest.

How can I prevent my employees from making unlawful agreements?

Regularly consult a lawyer to look after your purchasing conditions. This prevents your employees from entering into unlawful contracts. Contracts that have been concluded before the act enters into force remain excluded from the new regulation for one year. That grants you sufficient time to check all current contracts.

Please see this link for more information on this act (in Dutch).