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The EU’s plans to enforce 30-day payment terms for businesses in the bloc have dismayed retail groups, who say the proposals would inadvertently push up prices and encourage them to buy more from China.
The move is intended to support small businesses. But Kingfisher, the UK-listed owner of British home improvement store B&Q and European DIY stores Castorama and Brico Dépôt, said the 30-day limit proposed by the European Commission this month would lead the company to raise prices to generate enough cash in order to pay suppliers on time.
“It does not come for free. It puts the cost somewhere else in the value chain,” said Nick Lakin, head of corporate affairs at Kingfisher, which generates more than half its sales in the EU. “This would ultimately have consequences for consumers in terms of product availability, choice and price.”
Retailers in sectors such as clothing and furniture prefer to negotiate longer terms with suppliers, allowing them to spread payments over time.
While Lakin said Kingfisher preferred 30-day payment terms for small businesses to avoid putting “good suppliers under financial strain”, it has negotiated variable payment terms across Europe of up to 60 days, or up to 90 days for Asian suppliers.
Home improvement stores already source at least half of their goods from China, said Alisdair Gray, head of EU affairs at European DIY retail association EDRA. “Businesses are going to buy more from China because they will give you 90 days,” he said.
Christel Delberghe, director-general at Euro Commerce, the representative body for retailers and wholesalers, said: “We’re extremely worried. For example, if you’re a small clothing boutique, you buy your season in advance and usually pay your supplier over a certain period as you sell it. You don’t have the resources to buy the stock up front. That will no longer be possible.”
The proposals, which still have to be negotiated with the European parliament and member states, are part of a broader package of support measures for small and medium businesses announced by Paolo Gentiloni, EU economy commissioner, and Thierry Breton, commissioner for the internal market, earlier this month.
Late payments disproportionately hit small businesses, with a quarter of all bankruptcies for EU companies caused by invoices not being paid on time, according to the commission.
The commission “considers that big retailers currently use long payment terms as a way to transfer their business risk on to smaller suppliers”, an official said. “The new cap on payment terms is expected to provide for a fairer business environment across all sectors, particularly in transactions between larger and smaller market players.”
The Netherlands, Poland and Spain have already capped payment terms “without leading to a significant supply chain shift towards non-EU companies”, the official added.
Micky Adriaansens, the Dutch economic affairs minister, said she thought the wider measure was “a good thing”, adding: “It’s all about financial planning [for debtors]. It’s fair that the small enterprises have a stronger position.”
“Long payment terms have a negative effect on SMEs,” said Sophia Zakari, director of enterprise policy and legal affairs at SMEunited, a business lobby group. “Each side sees it from its own interest. Our interest is to make sure that SMEs don’t suffer late payments.”
But the anticipated change comes as inflation trims consumer spending across the EU and businesses adapt to comply with new sustainability and due diligence regulations introduced by Brussels.
Businesses buying fresh food must already pay suppliers within 30 days but can pay for other groceries within 60 days, under a 2019 EU directive.
Changing the 60-day limit “means moving a mountain of cash”, said Giuseppe Brambilla, vice-president of Federdistribuzione, a trade group for Italian distribution companies. “This will inevitably have an impact on inflation . . . we will have to increase pricing.”
Source: Economy - ft.com