Business transactions in the European Union will have to be paid within a maximum of 60 days, according to new rules approved Wednesday by the European Parliament, DPA reported.
The measures are mainly targeting public authorities, which in many EU countries take as long as six months to settle their debts with contractors.
"The new directive will help the entire European economy," EU industry commissioner Antonio Tajani said, stressing that its application will result in an extra 180 billion euros (250 billion dollars) of liquidity made available to businesses.
Payments will have to be cleared within 30 days for both business- to-business and public sector-to-private sector transactions, an EU parliament statement indicated.
However, the deadline can be extended to 60 days if parties agree. The longer deadline also applies for public hospitals, which normally take longer to pay as they are dependent on complex reimbursement schemes from national social security systems.
Any overdue payment over the agreed limit will accrue an 8-per- cent interest rate.
The new rules are expected to win final approval from EU ministers over the next weeks. Following that, governments will have up to two years to apply them into their national legislation.
The reforms are likely to cause significant headaches to cash- strapped governments in Italy, Spain, Greece and Portugal, where public authorities currently take the longest to settle bills.