The uncertainty of payment is one of the most difficult aspects of any business and often makes companies think twice before doing business with a foreign country. European cross-border payments can be particularly difficult. A 2004 study by one of Europe's leading management companies, Intrum Justitia, concludes that the difficulty of collecting on inter-European reduces EU competitiveness and holds back the European economy.

This comprehensive 2004 study compared payment habits in 22 European countries and examined more than 9,000 companies. It revealed that companies mentioned payment uncertainty as the most significant obstacle to growth in international trade. It also showed a majority of companies are very concerned with the consequences of late payments, including the heavy administrative and financial burdens. Small and medium sized enterprises (SMEs) are especially vulnerable as they often rely on a limited number of customers. Regionally in Europe, the risk of late payment increases as one goes from North to South. According to a March 2004 study by the Grant Thornton International Business Owners Survey, Italy, Spain and Greece are the slowest European payers, averaging more than 70 days.

It is frequently debated whether payment patterns are linked to the debtor's financial difficulties, particularly when many studies seem to indicate late payments are often intentional. Throughout Western Europe, 35% late payments are intentional, but in Spain that figure is almost double (62%). On the other hand, in Sweden, where statutory interest is high and recovery procedures are fast, intentional late payment is only 26%. These reports point to the need for consistent legal enforcement procedures across the EU, such as a high level of interest combined with rapid recovery. Businesses would also be helped by better enforcement of the EU Directive (2000/35/EC) on combating late payments, which took effect in August 2002 and covers all commercial transactions. This directive was designed to ensure that sellers of goods and providers of services will have a number of mechanisms for obtaining on time payment.

The Directive introduces fixed payment terms and provides an automatic statutory right to interest of at least 7% over the European Central Bank's base rate (or equivalent rates for Member States outside the euro zone) on debts more than 31 days old. The directive also gives creditors the right to claim compensation for all relevant recovery costs incurred as a result of late payment. It further allows the seller to retain title to the goods sold until payment is completed, if that is explicitly agreed on before delivery. Lastly, the Directive requires Member States to ensure creditors will be able to obtain an enforceable judgment in less than 90 days.

Slowly but surely, this EU Directive does seem to be improving payment times by European companies. Critics complain that it places large burdens on SME's by subjecting them to rapid payment demands of large creditors who are best able to use the full force of the law against small debtors. However, it is anticipated that this Directive will greatly benefit overall European trade by giving European exporters greater confidence in dealing with other EU countries.

(European Weekly's/Pazifische Rundschau published a similar version of this article in its January 2005 edition)