The standard deadline for paying bills will be 30 days under a deal with the European Council endorsed by the European Parliament in plenary session on October 20 2010, the European Parliament said in a media statement.

The new rules should ensure that small firms no longer face financial problems due to the late payment of bills by public authorities or companies and bolster solvency, innovation and jobs.

As a general rule, the deadline for both public and private sectors to pay a bill for goods or services will now be 30 days.

For more than a year, the European Parliament has pushed to secure more stringent and clear-cut rules on payment periods, the media statement said

The European Parliament's negotiators aimed to avoid loopholes and to ensure that any exceptions to the general deadline are restricted to special circumstances, according to the statement.

The agreement, presented to the European Parliament as a "consolidated amendment" to the report by the European Parliament's rapporteur Barbara Weiler (S&D, DE), received broad backing from all political groups and was approved with 612 votes in favour, 12 against and 21 abstentions.

"This directive will pave the way for a whole new payment culture. We have aimed to ensure that the rights of the smaller companies are enforced in order to improve liquidity and create a better climate for investments into new jobs", Barbara Weiler said in the debate on October 19.

She emphasised that EU member states should not wait up to two years to put the new rules into effect, but begin transposing them into their national laws as of January 2011.

The new payment periods

For business-to-business payments the general deadline is 30 days unless otherwise stated in the contract. If both parties agree, it is possible to go up to 60 days.

The payment period may be extended beyond 60 days only if "expressly agreed" by the creditor and the debtor in the contract and provided that it is not "grossly unfair" to the creditor.

For public-to-business payments the general deadline is 30 days. If the two parties wish to extend the payment period, this has to be "expressly agreed" and "objectively justified in the light of the particular nature or features of the contract".

The European Parliament fought hard to ensure that under no circumstances may the deadline for public authorities to pay a bill exceed 60 days, its media statement said.

Exemption for public entities providing healthcare

Member states may choose a payment deadline of up to 60 days for public entities providing healthcare. This is because of the special nature of bodies such as public hospitals, which are largely funded through reimbursements under social security systems.

Interest rate, compensation and verification period

The European Parliament pushed the European Council to accept a statutory interest rate on overdue payments of the reference rate plus at least eight per cent. The creditor is also entitled to obtain from the debtor, as a minimum, a fixed sum of 40 euro, as compensation for recovery costs.

The verification period for ascertaining that the goods or services comply with the contract terms is set at 30 days. This period may be extended in the case of particularly complex contracts, but only if expressly agreed and provided it is not grossly unfair to the creditor. Parliament secured an undertaking that verification periods may not be used as a loophole to delay payment unnecessarily.

Next steps

The agreement now needs to be formally adopted by the Council. The new directive enters into force 20 days after its publication in the EU Official Journal. EU member states will then have two years to implement the new measures.