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Code of Conduct on payment terms for SME companies operating in Sweden

Main points in the Code of Conduct for Swedish SME companies

Buying companies undertake to impose payment terms as below for new signatures or renegotiation of agreements within a maximum of 18 months.

Small companies – small cap (number of employees <50 and turnover <10 MEUR):

The buying company undertakes to pay the supplier, if requested, in a maximum of 30 days from when the correct invoice is received.

Medium companies – medium Cap (number of employees <250 and turnover <50 MEUR): 

The buying company offer to pay the supplier, if requested, in 30 days from when the correct invoice is received.

Exceptions: Longer contractual payment terms can be negotiated if special reasons exist, such as in procurement with suppliers of different size classes or procurement involving suppliers from different countries.

Background 

This is a voluntary Code of Conduct for payment terms. The Code of Conduct has been developed by the companies in response to the The Ministry of Enterprise and Innovation’s requirements on Swedish companies to voluntarily shorten payment terms for suppliers with a focus on SMEs.

“A claim for payment for a product or service in a business relationship between parties in their professional activities is due no later than thirty days after the creditor has demanded the claim to be paid” – 2 a § Räntelagen Interest Act (1975: 635).. Thus, in a business relationship between parties, payment may be made later if the creditor expressly approved”.

Within the EU, payment times between two parties are governed by Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payments in commercial transactions. This Directive stipulates that, in transactions between parties, Member States shall introduce rules ensuring that payment terms may not exceed 60 days, unless otherwise expressly agreed between parties and provided that it is not grossly unfair to the creditor.

This directive was implemented in Swedish law through the Government bill 2012/13: 36 Faster payments on March 16, 2013 where Sweden went further in its regulation with thirty days for public actors. During the parliamentary debate of the bill Faster Payments (Prop. 2012/13: 36), the Parliament announced that the government would return with proposals on how the position of SMEs could continue to be strengthened regarding payment terms, including legislative proposals that do not allow longer payment terms than thirty days in business relations between private sectors. The Ministry of Justice issued a proposal for sharpening legislation in 2013 and referred this.

A number of referral bodies expressed criticism of the proposal and opposed implementation. The forwarded criticism mainly concerned contractual freedom, deteriorating international competitiveness and that the business model in certain industries demanded longer terms of contract to operate.

Introduction

Increased internationalization and an increased competition from international suppliers have contributed to the fact that longer payment terms have become practice in Sweden. Many smaller companies, called SMEs, (small and medium cap) find that long payment terms create liquidity problems as significant capital gets tied up. These companies often have poor or no access to loan

financing through banking systems or capital market, which limits growth opportunities. However, it is important to consider that many of the larger SME companies compete with international suppliers for procurements where longer payment terms can occur and the larger SME companies must adapt to that competition. SME companies are an important asset to Sweden and for large Swedish companies. Given this background, it is important that the business community in Sweden Föreningen för effektiva affärstransaktioner inom näringslivet www.betaltider.se

addresses the problem and develops a code aimed to shortening payroll times in business and strengthening the position of SMEs. The business community therefore propose a voluntary Code of Conduct (“Code”) that provides improved payment terms for smaller companies. For other companies, the Swedish implementation of the EU directive applies.

Definitions and conditions

The Code of Conduct aims to improve payment terms in the Swedish business community. It is a first step towards better payment practices and will be evaluated two years after the introduction. During this time the appointed organization shall regularly follow the development of the Code of Conduct. If demands are made by the Government/Ministry of Enterprise, the responsible authority or designated organization will prepare simple and effective monitoring/reporting in cooperation with the industry.

• The EU’s definition of SME companies shall apply

• The Code of Conduct refers to purchases from Swedish companies from suppliers in Sweden

• The Code of Conduct excludes public procurement

• If the supplier company is part of a group, the definition limits are counted on group level. The supplier must prove that they fall within the definition

• It should be voluntary to join the Code of Conduct and an individual commitment. Connected companies commit individually to comply with the Code of Conduct.

• Each buying company is free to agree on new prices even when agreements have only been changed with regard to new payment terms

• Longer contractual payment terms can be negotiated and agreed upon, if the supplier accepts an offered financing solution

• The Code of Conduct should be managed, administered and followed up by authority or industry organization

• Monitoring and reporting must be based on simplicity and effectiveness and it is therefore important that the design is developed in cooperation between the companies and the responsible industry organization

Main points in the Code of Conduct for Swedish SME companies

Buying companies undertake to impose payment terms as below for new signatures or renegotiation of agreements within a maximum of 18 months.

Small companies – small cap (number of employees <50 and turnover <10 MEUR):

The buying company undertakes to pay the supplier, if requested, in a maximum of 30 days from when the correct invoice is received.

Medium companies – medium Cap (number of employees <250 and turnover <50 MEUR): 

The buying company offer to pay the supplier, if requested, in 30 days from when the correct invoice is received.

Exceptions: Longer contractual payment terms can be negotiated if special reasons exist, such as in procurement with suppliers of different size classes or procurement involving suppliers from different countries.