For SME exporters selling into European Union markets in 2026, debt recovery remains governed primarily by Directive 2011/7/EU on late payments, which sets statutory interest at the ECB reference rate plus 8 percentage points and entitles creditors to a flat EUR 40 compensation per unpaid invoice. The proposed EU Late Payment Regulation, which would have tightened enforcement considerably, was effectively abandoned after a blocking minority of member states opposed it and the European Commission signalled withdrawal following the European Parliament's April 2024 position. Understanding this legislative gap – and the practical tools that remain available – is essential before an unpaid invoice becomes a write-off.
Where the Law Actually Stands in 2026
The cornerstone of cross-border debt collection within the EU is still Directive 2011/7/EU. It obliges member states to ensure that creditors can claim statutory interest automatically once a contractual or statutory payment deadline passes, without the need to issue a formal reminder. The interest rate – ECB reference rate plus 8 percentage points – is reviewed twice yearly and applies unless the parties have agreed an alternative rate, provided that alternative is not grossly unfair to the creditor.
On commercial payment terms, the Directive allows B2B agreements to extend payment periods beyond the default 30-day period, up to a maximum of 60 days, unless the debtor can demonstrate that longer terms are not grossly unfair in the specific transaction context. In practice, some sectors routinely negotiate well beyond 60 days, and enforcement of the "grossly unfair" standard varies considerably between member states.
The flat EUR 40 compensation per invoice is intended to cover internal recovery costs. It does not replace a claim for legal fees or third-party collection costs, which remain separately recoverable to the extent they are reasonable and incurred. For SME exporters dealing with multiple smaller invoices, the cumulative effect of the EUR 40 entitlement can be commercially meaningful – but only if it is actually claimed.
For context on how the reform debate evolved and why the 2023 Regulation proposal did not become law, the detailed legislative history is analysed at our alert on the blocked EU Late Payment Regulation.
The Abandoned Reform and Its Practical Consequences
In September 2023 the European Commission tabled a draft Regulation intended to replace the 2011 Directive with directly applicable rules: mandatory 30-day payment caps in most B2B transactions, stronger enforcement powers and automatic interest without any contractual override. The European Parliament adopted its position in April 2024. However, a blocking minority of member states resisted the mandatory caps as too rigid for supply-chain financing models, and the Commission subsequently signalled withdrawal of the proposal. As of the date of this analysis, it has not been adopted and should not be treated as law.
The consequences for SME exporters are significant. Without the Regulation, there is no harmonised cap enforceable at the contract stage across the EU. Creditors must still rely on the "grossly unfair" standard, which is interpreted differently by national courts and arbitral bodies. An SME exporter selling to buyers in several member states simultaneously may find that the same clause in a standard contract is treated as enforceable in one jurisdiction and void in another.
This fragmentation also affects enforcement of judgment once a creditor has obtained a payment order or court decision. Execution procedures – including asset freezing, attachment of receivables and enforcement against immovable property – remain largely national. EU instruments such as the European Account Preservation Order (EAPO) can help secure funds held in banks across member states, but they require a court application and carry procedural requirements that are not always straightforward for SME creditors without local legal representation.
Cross-Border Dimensions: Jurisdiction, Governing Law and Enforcement
For an SME exporter based outside the EU, or for an EU exporter selling into multiple jurisdictions simultaneously, the procedural picture is more complex. Jurisdiction clauses in sale contracts interact with the Brussels Ia Regulation (Recast), which governs where an EU-seated court can hear a dispute. Where a judgment must be enforced outside the EU, for instance against a buyer with assets in a third country, separate recognition and enforcement proceedings are necessary under bilateral treaties or national law.
Governing law choices matter too. A contract governed by the law of a member state that interprets the "grossly unfair" threshold narrowly gives the creditor more leverage. Conversely, a choice of law clause pointing to a jurisdiction with permissive norms on extended payment terms may reduce the practical effect of the Directive.
For clients with exposure to Asian markets alongside EU ones, the strategic considerations differ further. Our team's work on debt recovery involving Japanese counterparties illustrates how enforcement chains can span multiple legal systems, each with distinct insolvency and priority rules.
If a debtor becomes insolvent mid-recovery, the creditor's position shifts entirely. Claims that are in active collection may be stayed, reclassified or affected by cross-border insolvency coordination under the EU Insolvency Regulation. Early-stage creditors who have not yet obtained a judgment often face the most exposure. Understanding when to pivot from an invoice recovery strategy to a restructuring or proof-of-debt process is a judgment call with significant financial consequences – and one covered in more detail in our work on bankruptcy and restructuring.
Practical Recovery Tools Available to SME Exporters
Despite the legislative gap left by the abandoned Regulation, SME exporters have a range of procedural tools available, provided they are used in the right sequence and timeframe.
- European Payment Order (EPO): Available under Regulation (EC) 1896/2006 for uncontested cross-border money claims within the EU. The procedure is written, relatively fast by judicial standards, and the order becomes enforceable across member states if the debtor does not contest it within 30 days. It is particularly suited to straightforward unpaid invoice claims with clear documentary support.
- European Small Claims Procedure: For claims below the applicable threshold (updated periodically by EU regulation), this offers a simplified cross-border mechanism. It is cost-accessible for SMEs but limited by value and subject to national court administration, which affects practical speed.
- European Account Preservation Order (EAPO): Available under Regulation (EU) 655/2014, this allows a creditor to freeze funds in bank accounts held in member states before or during proceedings, provided the creditor demonstrates a risk of asset dissipation. It is a powerful interim measure but requires swift action once the risk is identified.
- Domestic enforcement: Once a judgment or payment order is obtained – whether via EPO or national court proceedings – enforcement is executed by national authorities (bailiffs, courts, enforcement officers) under local procedural law. Timelines and effectiveness vary considerably between member states.
- Contractual mechanisms: Retention-of-title clauses, personal guarantees, advance payment terms, documentary credit arrangements and credit insurance each reduce exposure before a dispute arises. These preventive tools are systematically underutilised by SME exporters, particularly those entering new markets under time pressure.
Late payment interest claims under Directive 2011/7/EU are often left unclaimed in settlement negotiations, representing a real loss of leverage. A creditor who has calculated the accrued interest (ECB rate plus 8 points, compounded over the delay period) and the EUR 40 per-invoice compensation enters negotiation from a stronger position than one who relies only on the principal.
Strategic Recommendations for 2026
The combination of an unreformed Directive and an abandoned Regulation creates a window in which well-prepared creditors hold a structural advantage over those who rely on default terms. The following approaches are worth considering for SME exporters reviewing their receivables management in 2026.
- Audit existing contracts: Payment terms that were negotiated several years ago may contain clauses that are now either unenforceable (if grossly unfair) or weaker than necessary given the creditor's bargaining position. A systematic review of standard terms is more cost-effective than litigating each dispute.
- Jurisdiction and governing law: Where the exporter has genuine choice, structuring contracts under the law of a member state with a proven track record of enforcing the Directive's interest and compensation provisions provides a clearer recovery path.
- Pre-litigation notices: A formally structured demand letter that references the applicable statutory interest rate, the EUR 40 flat compensation entitlement and the creditor's intention to seek recovery costs often produces settlement without proceedings – particularly when the debtor is a regulated entity concerned about its credit standing.
- Escalation sequencing: Moving from internal demand to EPO application to enforcement request in a structured timeline, with clearly defined trigger points, reduces the risk of limitation period issues and asset dissipation. The EAPO application should be considered at the first credible sign of insolvency risk.
- Monitor the legislative landscape: The European Commission may revisit late payment reform in its next legislative cycle. SME exporters operating under long-term framework agreements should build flexibility into their contract review processes to accommodate potential changes in mandatory payment terms.
Outlook: What to Expect Beyond 2026
The failure of the proposed Regulation represents a significant setback for harmonisation, but it does not foreclose future reform. Political pressure from SME representative bodies, the European Commission's ongoing competitiveness agenda and signals from the European Parliament suggest that some version of late payment reform is likely to return as a legislative priority, albeit with a different architecture that accommodates the concerns of member states that blocked the 2023 proposal.
In the interim, divergence between member states will persist. Creditors with active EU portfolios should expect continued variation in judicial timelines, enforcement effectiveness and interpretation of the "grossly unfair" standard. The practical implication is that a one-size-fits-all recovery strategy is unlikely to be optimal: jurisdiction-by-jurisdiction assessment of the debtor's assets, applicable procedural law and local enforcement infrastructure remains the more reliable approach.
Regulatory and case-law developments at the CJEU level continue to refine the interpretation of the 2011 Directive, and guidance from the European Commission, alongside signals from bodies such as the EBA on SME credit risk, may influence how national courts approach interest and compensation claims in contested cases. Staying current with EUR-Lex updates relevant to your sector is an operational necessity, not a compliance formality.
If your business is carrying unresolved receivables from EU counterparties, or if you are reviewing your standard payment terms ahead of new contracts, our team is available to discuss the options. Please reach out at info@ferrazwhitmore.com or visit our contacts page to arrange a consultation.
A Note on Preventive Structuring
The most cost-effective debt recovery strategy is one that reduces the frequency of disputes rather than optimising the litigation path after they arise. For SME exporters, this means treating contract drafting, credit assessment and payment monitoring as integrated functions rather than separate administrative tasks. The EUR 40 compensation entitlement is useful; not needing to claim it is better.
Ferraz & Whitmore advises clients at both ends of this spectrum – from pre-contract term structuring through to enforcement of judgment across multiple EU jurisdictions. If you would like to understand how the current framework applies to your specific receivables book or export contracts, contact us at info@ferrazwhitmore.com or through our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.