The financial impact of the EU late payment directive 2000/35/EC on the Maltese pharmaceutical sector

Abstract

Late payment in commercial transactions is a serious problem for many businesses. In the long-term, their financial health is undermined, leading to devastating consequences on the economies of many countries. In response to such a bad commercial practice, the European Union (EU) developed the Late Payment Directive 200/35/EC aimed at curbing late payment as well as harmonizing business payment practices throughout the member states. The late payment problem is also severely present in our country. Malta's recent accession to the EU must lead to the introduction of this Directive into national legislation in the near future. Through an analysis of the Directive's provisions, the study seeks to determine its financial impact on Maltese pharmaceutical companies. A representative sample of companies was chosen and the impact was assessed in terms of the changes occurring in the financial statements on the Directive's application. The companies' liquidity and profitability positions improve significantly following the Directive's application. However, for companies to reap its full benefits, they should treat the Directive's provisions as part and parcel of their credit management policy. Moreover, the Directive's assimilation in Malta's legislation should be accompanied by a thorough information campaign to create awareness amongst the local business community on the benefits provided by its provisions. In this way, our business community would experience a shift towards a better payment culture in our country.