ISSN 1831-9424

Assessing the economic impact of faster

payments in B2B commercial
transactions
Final Report

Ferrara, A., Ferraresi, M.

2022

EUR 31169 EN
This publication is a Technical report by the Joint Research Centre (JRC), the European Commission’s science and knowledge service. It aims
to provide evidence-based scientific support to the European policymaking process. The scientific output expressed does not imply a policy
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of its frontiers or boundaries.

Contact information
Name: Antonella Ferrara
Address: Via E. Fermi 2749, TP 261
Email: antonella.ferrara@ec.europa.eu
Tel.: +39 0332 786538

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https://ec.europa.eu/jrc

JRC130247

EUR 31169 EN

PDF ISBN 978-92-76-55593-3 ISSN 1831-9424 doi:10.2760/219348 KJ-NA-31-169-EN-N

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How to cite this report: Ferrara A., Ferraresi M., Assessing the economic impact of faster payments in B2B commercial transactions,
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Contents

1. Introduction..................................................................................................................................................................................................................................................... 5
2. Institutional framework ...................................................................................................................................................................................................................... 7
3. The economic consequences of late payments: a review of the literature ...................................................................................... 8
4. Econometric Strategy .........................................................................................................................................................................................................................11
5. Data ....................................................................................................................................................................................................................................................................12
5.1 Country panels ............................................................................................................................................................................................................................12
5.2 Exposure variable .....................................................................................................................................................................................................................13
5.3 Cash Flow .........................................................................................................................................................................................................................................15
6. Results ..............................................................................................................................................................................................................................................................17
6.1 Event-study analysis .............................................................................................................................................................................................................18
7. Robustness checks ................................................................................................................................................................................................................................20
7.1 Heterogeneity by country .................................................................................................................................................................................................20
7.2 Heterogeneity by sector .....................................................................................................................................................................................................22
7.3 Market linkages ..........................................................................................................................................................................................................................22
7.4 Results on other outcome variables .......................................................................................................................................................................24
7.5 Other robustness checks ...................................................................................................................................................................................................26
7.6 Sensitivity checks .....................................................................................................................................................................................................................26
Different “exposure” indicator ...................................................................................................................................................................................................27
Different thresholds of credit collection terms .........................................................................................................................................................27
8. Conclusions ..................................................................................................................................................................................................................................................28
9. Appendix .........................................................................................................................................................................................................................................................29
9.1 Tables ..................................................................................................................................................................................................................................................29
9.2 Figures ................................................................................................................................................................................................................................................33
References .............................................................................................................................................................................................................................................................34
List of abbreviations and definitions ...........................................................................................................................................................................................36
List of tables ........................................................................................................................................................................................................................................................37
List of figures .....................................................................................................................................................................................................................................................38

i
Abstract
Delayed payment in commercial transactions, is an important concern for businesses. Excessively delayed
payments determine higher cost and liquidity risks for the supplier and are a main cause for insolvency and
bankruptcy. Such concerns have led the European Commission to adopt the Late Payment Directive (LPD) in
2011, this is the recast of an earlier late payment directive, adopted in 2000. The LPD’s objective is set to tackle
late payments in business-to-business (B2B) and public administration-to-business (PA2B) transactions and
foster a “culture of prompt payment” in the EU. The present study sets an empirical framework to estimate the
economic impact of capping the payment term in B2B commercial transactions to 30 and 60 days, considering
a panel of nine European countries. It implements the statistical technique known as difference-in-differences
(DiD) to estimate the impact of the LPD-B2B, on firms’ performance. Results indicate that the LPD has been
associated with higher cash flow in firms that were experiencing longer time to collect their credits in the past.
In particular, four years after the adoption of the LPD the average cash flow is twice as much its value the year
before the introduction of the directive, when comparing firms highly exposed to payment delays with less
exposed ones. Moreover, this study documents that a significant positive difference between more and less
exposed firms is also found in the levels of sales, again four years after the introduction of the directive. Finally,
the effect on both investments and tangible assets is not statistically significant at the conventional level.

1
Acknowledgements
We are grateful to Antonella Correra (DG GROW.A.2), Inigo Urresti (DG GROW.A.2), Leandro Elia and Maurizio
Conti for fruitful discussion and comments on an earlier version of the document.

Authors
Antonella Ferrara, Massimiliano Ferraresi

2
Executive Summary
Delayed payment in commercial transactions is an important concern for businesses. Excessively delayed
payments determine higher cost and liquidity risks for the supplier. This is particularly harmful to SMEs (small
and medium-sized enterprises) that are more liquidity constrained and cannot obtain external financing at the
same conditions as larger companies do. Ultimately, late payment leads to insolvency: it has been estimated
that payment delays account for one out of four bankruptcies in the EU. Such concerns have led the European
Commission to adopt in 2011 the Late Payment Directive (LPD), which is the recast of an earlier late payment
directive, adopted in 2000. The LPD’s objective is set to tackle late payments in business-to-business (B2B) and
public administration-to-business (PA2B) transactions and foster a “culture of prompt payment” in the EU. The
LPD lays down several measures which include, among others, a 30-day target for payments made by public
sector bodies to business (PA2B) for the purchase of goods and services, although for public authorities in the
health sector (e.g. hospitals) this term is 60 days. In B2B transactions, the Directive also lays down a standard
maximum payment term of 30 days, which can be extended to up to 60 days. However, the parties can negotiate
payment terms longer than 60 days, as long as these longer terms have been expressly agreed in the contract
and are not grossly unfair to the creditor.
Nevertheless, despite the adoption of the LPD, payment terms in B2B transactions exceed, often significantly
the 60-day target, regardless of whether they are grossly unfair to the creditor. The Commission has received
evidence of payment terms negotiated at 240 days in the construction sector, which are abusive towards the
creditors. The present study develops an empirical framework to estimate the economic impact of capping the
payment term in B2B commercial transactions at 30 and 60 days. It implements the statistical technique known
as difference-in-differences (DiD) to estimate the impact of the LPD-B2B, on firms’ performance. In particular,
the average change over time of an outcome variable (i.e. firms’ performance) for a group of firms more
exposed to the Directive (the “treatment” group) is compared to the average change of the same variable for a
group of firms whose business activity is less exposed to the regulation (the “control” group), where the firm’s
exposure to the LPD is defined on the basis of the average number of days it takes to collect payment from its
customers (credits payment duration).
Previous findings (Conti et al. 2021) showed that the adoption of the LPD was associated with lower exit rates
and higher employment levels in industries that historically trade more with the Public Administration (PA).
Moreover, the intermediate report of the LPDB2B project (Ferrara and Ferraresi, 2021) focused on a single
country, Italy, took as a pilot case in preparation of the final analysis.1 Estimates indicated that LPD has been
associated with higher cash flow in firms that were experiencing longer time to collect their credits in the past.
Furthermore, the study documented that the introduction of the LPD has been associated with an increase in
sales in firms more exposed to the LPD as compared to firms less dependent. In particular, the adoption of the
LPD, in Italy, increased firms’ cash flow by about 32 million euros in firms highly exposed (i.e. firms that used
to collect their credits within 90 days) as compared to firms potentially less affected (i.e. firms that already
used to collect their credits in less than 30 days). Effects were also confirmed both in magnitude and
significance also for firms with less than 250 employees. On a related note, the analysis has also shown that
the effect of the LPD is stronger the larger the average number of days a firm was taken to collect payment
from its customers. Further analyses suggest that findings were driven by firms operating in the manufacturing
and construction sectors. For the Italian case, the effect on both investments and tangible assets was not
statistically significant at the conventional level.
The present study seeks to dig deeper into the impact the LPD has had on firms’ performance, by focusing on
B2B commercial transactions and extends the analysis discussed above to a panel of nine European countries,
selected as described in Section 5.1. Findings suggest that the LPD increased cash flow in firms more exposed
to its B2B provisions as compared to firms less exposed to it. Nevertheless, the magnitude of the effect depends
on the degree of exposure to payment duration.

1
Italy well-suits the purpose of the analysis as payment duration is considered one of the main challenges for enterprises and especially
for SMEs. Moreover, the country is also sufficiently covered by Orbis data given its strict balance sheet reporting obligations.
3
In particular, it turns out that, four years after the adoption of the LPD the average cash flow, in highly exposed
companies, is over 60% higher than its value the year prior to the introduction of the directive. This result refers
to the comparison between firms highly exposed to payment delays (i.e. firms that used to collect credits in
120 days) with less exposed ones, namely firms already receiving payment in compliance with the LPD
provisions (i.e. firms that used to collect their credits in less than 30 days). On average, the effect of the LPD
on aggregate cash flow is stronger the larger the average number of days a firm was taken to collect payment
from its customers in the past (i.e. before the outset of the directive) and it amounts to 3.69 million euro, which
is roughly a 0.9% increase for each differential day.
However, the effect was delayed in time (four and five years after its implementation) and more marked in the
manufacturing and construction sectors, characterized by a strong presence of SMEs in the relevant supply
chains2. Finally, the study seeks to shed light on the propagation of the effect along supplier-buyer market
linkages. This analysis is conducted at sector-level and points out that credits collection terms in upstream and
downstream markets might influence the association between the outset of the LPD and sectoral cash flow,
providing suggestive evidence of heterogeneous effects across countries.
All in all, by fostering more discipline in payment performance the LPD appears to have had considerable and
beneficial repercussions on the economy, in both payments in commercial transactions B2B and PA2B.
Thanks to the LPD, payments in commercial transactions in the EU have been made predictable within a
“standard” term, ranging between 30 and 60 days. The study shows that this “mechanism” is effective, and that
it has brought tangible results to the cash flow, sales, and ultimately the competitiveness of businesses. The
study demonstrates that every single day of payment delay has a huge cost for businesses and the wider
economy. The “predictability of payment” within an identified time range is therefore the cornerstone of the
LPD and has to be preserved and enforced for the benefit of EU businesses.

2
In the construction sector, SMEs represent 99.9% out of the 5.3million firms in the EU. https://ec.europa.eu/info/sites/default/files/swd-
annual-single-market-report-2021_en.pdf
4
1. Introduction
Deferred payment in commercial transactions, also known as trade credit, is an important form of access to
finance for businesses. Deferred payment terms are a tool for buyers to finance their activity, with no interests,
and can therefore represent a short-term debt. However, on the supplier side, long contractual payment terms
(or payments occurring after the agreed payment term) determine unjustified additional costs and liquidity
risks. This is particularly harmful to those liquidity-constrained companies, such as SMEs (small and medium-
sized enterprises) with limited access to external funds, which could be exposed to growth decline and survival
threats. The magnitude of this uncertainty hinges on the existence of alternative financing options and the
loyalty of the firm benefiting from the trade credit.
In 2008, the economic and financial crisis exacerbated the issue of late payments, with greater exposure to
liquidity uncertainty of small and medium-sized enterprises (SMEs). The latter is usually characterised by a
weaker financial resilience, due to a higher sensitivity to economic downturns, less bargaining power in trade
transactions and limited access to credit.
In February 2011, to protect European businesses, particularly SMEs, against late payment in commercial
transactions, the EU Commission adopted the Directive 2011/7/EU. The Late Payment Directive (LPD)
implements several measures which include, among others, a 30-day target for payments made by public
sector bodies to business (PA2B) for the purchase of goods and services. For public authorities in the health
sector (e.g. hospitals) this term is 60 days. In business-to-business (B2B) transactions, the Directive also lays
down a standard maximum payment term of 30 days, which can be extended to up to 60 days. However, the
parties can negotiate payment terms longer than 60 days, as long as these extended terms have been expressly
agreed in the contract and are not grossly unfair to the creditor. The rationale of the Directive was mainly to
enhance the certainty of payment terms and discourage payment delays. Consequently, the LPD is expected to
improve firms’ liquidity and reduce the risk of insolvency as well as boost firms’ economic performance and
resilience.
The 2020 European Payment Report (Intrum Justitia, 2020) underlines that EU businesses are about to enter a
historic economic recession. In this context, a widening payment gap also threatens business growth, especially
in the real estate and construction sectors. The report showed that the average payment gap is widening
particularly in B2B, with an average of 14 days (up from 6 days in 2019). Spain is the country experiencing the
largest payment gap in 2020 in B2B transactions, with 21 days between the offered and the actual payment
terms. The actual payment times also show some industry specificities, with an EU average of 60 days and
three sectors above this value: real estate and construction (63), business services (61), energy, mining and
utilities (61), even though the average payment term offered for B2B is 46 days. Outstanding payments in
commercial transactions might threaten business growth and long terms sustainability of the business cycle.
To counteract these effects, companies are more widely making use of the provisions set by the LPD and the
related (40 euro) compensation, especially in Ireland, and Croatia.
In the empirical literature, little is still known on the effect of the LPD provisions on firms’ performance in the
EU. As far as PA2B operations are concerned, a recent study (Conti et al. 2021) showed that, as a result of the
adoption of the Directive by Member States (MS), firms’ exit rate has fallen more in those sectors that were
more exposed to government transactions. These findings are particularly relevant in indicating how stricter
rules on government payment can affect economic activity. For what concerns B2B transactions, it is possible
to rely only on descriptive evidence on the implementation of the Directive 3, showing that payment terms
exceed, often significantly, 60 days, regardless of whether it is grossly unfair to the creditor, leading to severe
economic consequences for enterprises, especially SMEs.
The present study uses data on firms’ over the period 2008-18 operating in nine European countries (Belgium,
Germany, Spain, France, Finland, Hungary, Italy and the Netherlands) and applies the statistical technique known
as difference-in-differences (DiD) to estimate the impact of the LPD provisions in B2B transactions. In particular,
the average change over time of an outcome variable (i.e. firms’ cash flow) for a group of firms more exposed
to the directive (the “treatment” group) –on which the LPD could have had a greater impact – is compared to
the average change of the same variable for a group of firms whose business activity is expected to be less
exposed to the LPD (the “control” group).

3
CONFAPI – L’impatto delle dilazioni dei pagamenti sulla situazione finanziaria delle imprese – 2012-2013.
5
A firm’s degree of exposure to the directive is measured by the average number of days it takes to collect its
credits. It is assumed that the longer was the period a firm needed to collect money from its creditors before
the LPD, the more it is likely to be exposed to late payments from other firms and, therefore, might potentially
benefit from the adoption of the LPD.
Conversely, for firms that were already collecting their credit in line with the provisions of the Directive, the
effect of its introduction is expected to be relatively low. Therefore, the firms that exhibited higher payment
duration to collect their credits are part of the “treatment” group, whereas firms characterized by lower payment
duration represent the “control” group. The comparison of the average change of a response variable between
these two groups allows disentangling the causal effect of the LPD from other underlying factors affecting the
economy.
An earlier pilot analysis conducted on Italian firms only (Ferrara and Ferraresi, 2021) indicated that the LPD has
been associated with higher cash flow in firms that experienced a longer time to collect their credits in the past.
In particular, the adoption of the LPD has increased firms’ cash flow by about 32 million euros in firms highly
exposed to the Directive (i.e. firms that used to collect their credits in 90 days) as compared to firms less
dependent (i.e., firms that used to collect their credits in less than 30 days). Further analyses suggested that
the effect is more marked for firms operating in the manufacturing and construction sectors. Moreover, the
study documented that the introduction of the LPD has also been associated with an increase in sales in firms
more exposed to the LPD as compared to firms less dependent. Finally, the analysis has found a non-statistically
significant effect, at the conventional level, for both investments and tangible assets.
The present analysis extends the study described above to a panel of nine European countries. Findings suggest
that the LPD increased cash flow in firms more exposed to its B2B provisions as compared to firms less exposed
to it. Nevertheless, the magnitude of the effect depends on the degree of exposure to payment duration.
In particular, it turns out that, four years after the adoption of the LPD the average cash flow is twice as much
its value the year before the introduction of the directive. This result refers to the comparison between firms
highly exposed to payment delays (i.e. firms that used to collect credits in 120 days) with less exposed ones,
namely firms already receiving payment in compliance with the LPD provisions (i.e. firms that used to collect
their credits in less than 30 days). However, the effect was delayed in time (four and five years after its
implementation) and mainly driven by the manufacturing and construction sectors, characterized by a strong
presence of SMEs in the relevant supply chains.
Finally, the analysis seek to shed light on the propagation of the effect along supplier-seller market linkages,
providing suggestive evidence towards the existence of some influence exerted by upstream and downstream
markets on the association between the outset of the LPD and sectoral cash flow, with non-negligible
differences across countries.
The remainder of the report is organised as follows. Section 2 provides a brief overview of the Directive and
gives details on the transposition into the national legislation. Section 3 reviews the relevant literature on the
impact of trade credit on firms’ outcomes. Section 4 characterizes the econometric approach adopted in this
study. Section 5 describes the data, while Sections 6 and 7 present the results and robustness checks,
respectively. Section 8 concludes.

6
2. Institutional framework
Late payment in commercial transactions is widely considered a severe concern for business activities in Europe
and causes a considerable financial burden to enterprises. Throughout the years, the European Commission (EC)
has put in a lot of effort in tackling late payments. First, in 2000, a common approach to combat late payments
was adopted by the directive 2000/35/EC, which was, however, marginally effective, as it introduced mild
provisions and weak enforcement. Then, in 2011, the Directive 2011/7/EU (LPD) was finally approved to foster
“prompt payments”. The LPD regulates both commercial transactions between public authorities and businesses
and among businesses. The general objectives of the Directive were to i) contribute to the development of the
Single Market; ii) improve the competitiveness of European enterprises and iii) eliminate barriers to cross-border
commercial transactions.
To achieve these objectives, the LPD established several measures that can be grouped into five points. First, it
sets a 30-day target for payments made by public sector bodies to businesses for the purchases of goods and
services. Under particular circumstances (e.g. public authorities providing healthcare), this limit is increased to
60 days. Second, the Directive recognizes contractual freedom in business-to-business transactions, i.e.
enterprises have to pay their invoices within 60 days unless otherwise agreed and provided that this is not
grossly unfair. Third, businesses are entitled to claim interests for late payments and to obtain compensation
for recovery costs. Fourth, the LPD sets a statutory interest rate for late payments in all MS of at least 8
percentage points above the European Central Bank's reference rate and prohibited public authorities to set a
lower interest rate for late payments. Finally, EU-MS lay down recovery procedures for undisputed claims so
that enforceable titles can be obtained within 90 calendar days from the start of a creditor's action or
application to a court. By stimulating more discipline in governments' payment schedules, these measures were
expected to produce substantive improvements in enterprises cash flow, reduce costs and prevent bankruptcy
due to limited self-financing, remove barriers to cross-border commercial transactions within EU boundaries
and reduce the cost for businesses, especially for SMEs.
The Directive required MS to adopt its provisions by March 16th, 2013. However, each EU-MS transposed the
Directive into national legislation at a different time: Croatia, Cyprus, the Czech Republic, Ireland, Italy and Malta
transposed in 2012. These were followed in 2013 by Austria, Bulgaria, Denmark, Greece, Estonia, Finland,
Hungary, Latvia, Lithuania, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, and the UK. Finally,
Germany, the Netherlands and Sweden adopted the new regulations in 2014.
In B2B commercial transactions, the LPD lays down a payment term of 30 days, which can be extended to up
to a 60-day target, expressly agreed in the contract and as long as it is not grossly unfair to the creditor.
However, evidence on the implementation of the Directive has shown that actual payment terms exceed, often
significantly, the 60-day target, regardless of whether they are grossly unfair to the creditor. Along these lines,
the Commission has collected evidence of payment terms that are abusive towards the creditors. In the
construction sector, there have been payment terms negotiated even at 240 days. A non-negligible role is played
by firm size, as large companies might exert a stronger market power to impose long payment terms on their
(smaller) business partners who nevertheless generally accept these unfair conditions out of fear of losing the
business relationship.
The European Parliament, in the 2019 Resolution on the implementation of the Late Payment Directive, stressed
that more effort is needed to meet the 30-day payment term, which is now usually overtaken by payment
deadlines going beyond 60 days, as permitted by the Directive 2011/7/EU. The flexibility introduced by the LPD,
leaving to the parties the agreement of long payment terms, could be damaging for companies, especially for
SMEs.
This concern has been further exacerbated by the current economic crisis due to the Covid-19 outbreak,
especially in B2B transactions. Since the start of the pandemic, the rate of increase in unpaid invoices has shot
up +23% in the UK, +26% in the Netherlands, +44% in Belgium, +52% in Spain, +56% in France and +80% in
Italy. Moreover, the DSO (Days Sales Outstanding) is estimated to reach its highest level (at 68 days average)
in the last decade, and increase twice as much as during the 2008-2012 financial crisis.
The last EPR Report (2021) outlines that firms have experienced a non-negligible decline during the pandemic
and are now looking for a growth booster. The Covid-19 outbreak has also shaped a new strategic approach
centred on debt management and seeking to strengthen liquidity and cash flow. In 2021, despite the risk of
late payment being expected to grow, prompt payment performance and compliance with the LPD has fallen
and a review of the existing rules is expected for the future.

7
3. The economic consequences of late payments: a review of the literature
Trade credit is the practice of paying for the purchase of goods and services at later date. Many firms use trade
credit both to finance their input purchases (accounts payable) and to offer extended payment terms to their
customers (accounts receivable). A considerable body of research has analysed the functioning of trade credit
under different macroeconomic circumstances. Existing evidence unanimously shows that trade credit is an
important source of external finance for firms. Moreover, the empirical literature indicates that the size of trade
credit is key for the long-term sustainability of businesses growth.
Firms use trade credit for a variety of reasons which relates to real and financial functions. On the one hand,
the supply of credit can strengthen customer relationships. Pike et al. (2005) posit that granting an extension
of payment terms can provide an opportunity to sellers to reduce concerns about product quality because a
longer time allows buyers to probe quality before making payment and, as such, enhance sellers’ reputation. At
the same time, trade credit can also reduce sellers’ uncertainty concerning buyer payment intentions. Sellers
can offer two-part payment terms to induce buyers to pay early and to engage in risk sharing with the seller.
Yet, trade credit can be used to price discriminate amongst customers (Petersen and Rajan, 1997). As payment
terms are generally not tailored to the customers – terms seem to follow sector practice – the sellers can charge
a reduced price to low-quality (marginal) borrowers, without cutting the price to existing customers. Price
discrimination through trade credit can also occur if the supplier has a long-term interest in the survival of the
customer and factors in the present value of profit margins of future sales.
On the other hand, trade credit represents a source of funding, an alternative to bank lending. Trade credit is
nowadays pervasive and, is one of the most important sources of companies’ external financing (Demirguc-
Kunt and Maksimovic 2001). In the U.S., for example, trade credit amounts to 31.3% of the total debt of SMEs,
a share very close to that of debt financing, 37.2% (Berger and Udell 1998). In Europe, trade credit is also
considerable. The recent wave (ECB, 2020) of the “Survey on the Access to Finance of Enterprises in the euro
area” carried out by the European Central Bank indicates that 28% of SMEs financing is done through trade
credit and there is an overall increased need for it. The use of trade credit becomes effective especially in
markets where finance options from financial intermediaries are inadequate and insufficient (Jaffe and Stiglitz,
1990; Petersen and Rajan, 1997). Market imperfection due to the presence of transaction costs and asymmetric
information in the lending relationship fuels the financial use of trade credit. Firms subject to credit rationing
can find it easier to obtain trade credit from their sellers (substitution effect) to finance their current activities.
Constrained clients indeed are more likely to increase the demand for trade credit when rationing exists in the
lending markets (Biais and Gollier, 1997; Gama and Mateus, 2010). Against this background, trade credit has
obvious advantages because it has lower costs, requires uncomplicated contractual arrangements, and has
greater flexibility concerning its duration. As such, for many firms, trade credit represents the best – if not the
only - available financing opportunity. Moreover, the use of trade credit can mitigate misinformation on creditor
trustworthiness that may cause limited access to credit for opaque and young firms and decrease credit
rationing (Demirguc-Kunt and Maksimovic, 2001). Indeed, receiving trade credit implies that the firm is trusted
by suppliers, which may improve the reputation of that firm, and banks may be more inclined to provide loans.
In this context, trade credit is an instrument that facilitates access to bank financing (complementary effect).
In modern economies, firms purchase and sell goods and services to/from many other firms. The commercial
transactions behind the inter-firm relationships may entail firms demanding trade credit to finance account
receivables granted to customers (Fabbri and Klapper, 2008). As such, the dimension of firms’ account
receivables can be as large as that of the account payables. Therefore, the terms offered to customers must
match the terms received from suppliers to limit the risk that a firm cannot meet its short-term debts (matching
hypothesis). This becomes particularly relevant for firms that hold very large account receivables and do not
have access to other forms of external finance. Moreover, when credits are not collected in due time, firms’
payment of invoices may be subject to delays and, in turn, this can affect payment terms of the costumers as
well, leading to a contagion effect. Boissay and Gropp (2013) document that trade creditors are likely to respond
to late trade debtor payments by postponing their trade credit payments. This negative liquidity shock is
transmitted along the trade credit chain until it reaches a trade creditor with sufficient cash-holding or access
to external finance which can absorb the shock. The extent of this cascade effect is amplified during the
economic downturn and, in the presence of limited access to bank lending, this mechanism can have detrimental
effects (see Demirguc-Kunt and Maksimovic 2001 and Jacobson and von Schedvin, 2015).

8
Carbò-valverde et al. (2016) analyze the role of trade credit for Spanish SMEs during the economic downturn
and show that financially constrained firms are more dependent on trade credit to make their investment
decisions; this tendency is more prominent during the crisis since SMEs tend to rely more on trade credit than
bank loans. Bussoli and Marino (2018) also reach a similar conclusion. Their study finds that, during the financial
crisis of 2006-13, European SMEs with a high probability of insolvency tended to use trade credit more
extensively, and that liquidity shocks were propagated through trade credit channels.
The trade-credit represents a tool through which managing business growth. Ferrando and Mulier (2013) are
the first to document this phenomenon, showing that is more pronounced in economies where the trade credit
channel is more present. Moreover, it seems that firms more vulnerable to financial market imperfections tend
to rely more on trade credit to boost growth. Firm and product characteristics can also affect the propensity to
use and the size of trade credit. Focusing on a sample of SMEs in seven European countries (Belgium, Finland,
France, Greece, Spain, Sweden and the UK), García-Teruel and Martínez- Solano (2010) document indeed that
the size of the firm is an important marker of trade credit. They show that firms with greater capacity to obtain
resources from the capital market grant more trade credit to their customers. Financing through trade credit is
also higher in firms with sizable sales growth, greater growth opportunities and greater investment in current
assets. Giannetti et al. (2008) report that the extent of trade credit in the United States is correlated with the
characteristics of the traded product and with the buyer’s banking relationships. Their study indicates that
accounts receivables are larger for suppliers of differentiated products and services as compared to suppliers
of standardized goods, mainly because of high switching costs that make it difficult for suppliers to swiftly
replace customers. They also provide evidence of a complementary effect of trade credit that enhances access
to bank lending by improving a firm’s creditworthiness.
Another factor that has been shown to predict the use of trade credit is the degree of bargaining power that a
firm can exert towards its customers. Wilner (2000) posits that sellers have low bargaining power when they
depend strongly on buyers’ purchases - their profit’s share counts deeply on customers’ orders. This results in
sellers offering higher trade credit and customers paying beyond the agreed date. Fabbri and Klapper (2016)
document the positive correlation between bargaining power and the size of trade credit for a sample of Chinese
suppliers. Interestingly, they find that sellers offer longer payment periods before imposing penalties and that
important customers often generate overdue payments. The supplier’s bargaining power might depend on the
degree of competition in the product market. In a competitive market, each supplier of a homogenous good has
a propensity to allow delayed payments to attract new customers, or to prevent existing ones from switching
to different suppliers. This suggests that market power is negatively associated with trade credit provision.
Using data on commercial transactions of firms in five African countries Fisman and Raturi (2004) provide
evidence supporting this negative association. Cunat (2007) shows that higher trade credit provision also arises
when both buyers and suppliers have large market power (e.g., bilateral monopoly). For instance, when goods
are tailored to the specific needs of the buyer, higher switching costs exist and both suppliers and customers
are not willing to substitute their commercial partners. Therefore, sellers and buyers are more likely to grant
(and receive) trade credit with long payment terms.
Despite the clear advantages trade credit offers, payment delays can do significant harm to companies, leading
to a considerable amount of resources being depleted to pursue the collection of debts. Late payment could
jeopardize companies’ expenses for, e.g., staff salaries, supplies, rents and expenses for operations. Yet, delayed
payments could force companies to use their reserves instead of putting them to investment, hampering
business growth. Existing evidence shows that regulations aiming to stimulate more discipline in payment
schedules can mitigate the downsides of chronic delays. Barrot (2016) assesses the impact of a law tackling
late payment in the French trucking sector and shows that the reform reduced exit rate and increased entry
rate. Barrot and Nanda (2016) investigate the impact of the US Quickpay reform, which accelerated federal
government payments to small business contractors, and document that its implementation, by reducing
payment terms, has had a positive indirect impact on employment growth in the affected firms. Furthermore,
Breza and Liberman (2017) examine a regulation in Chile that forced one large retailer to reduce payment
terms for contracts signed with small-sized suppliers and document a reduction of transactions between the
retailer and the affected suppliers which encouraged the retailer’s vertical integration.

9
SMEs are more dependent on bank finance and are more vulnerable to financing constraints especially in the
aftermath of the banking crisis. Against this backdrop, firms’ survival can depend on the actions of financially
unconstrained creditors who can extend additional trade credit and relax payment terms to their financially
constrained counterparts. McGuinness et al. (2017) analyze a sample of firms in 13 European countries and
show that trade credit has a large positive impact on SMEs survival. Moreover, the study reports that cash-rich
or unconstrained firms tend to extend significantly more net trade credit than their more financially constrained
counterparts. A similar positive effect on the survival of firms is documented in Conti et al. (2021), they use
sector-level data for Europe and focus on government-to-business transactions to show that firms in sectors
that sell a large fraction of their output to the government are less likely to exit the market.
To sum up, trade credit affects the functioning of business activities on a variety of dimensions. First, it improves
a company’s cash flow management and nurtures the creation of a balanced cash flow, by allowing buyers to
hedge against temporary liquidity shocks. Second, it can create additional opportunities for short-term financing
and can increase the likelihood of accessing bank lending, especially for financially constrained firms. Third,
trade credit can strengthen the seller-customer relationship by allowing sellers to sustain the growth of
commercial partners in financial difficulty. At the same time, an extension of payment terms may produce
substantial negative externalities to trade creditors, especially when debtors pay invoices late and beyond the
agreed date, exposing firms to severe liquidity risks. Therefore, through its influence on important operating
attributes, trade credit plays an important role in determining patterns of companies’ growth.

10
4. Econometric Strategy
The baseline empirical model of this study builds on a large literature that uses the Difference-in-Differences
(DiD) method to investigate the net impact of a policy/program on given outcomes. The standard case for
applying the DiD is when a change in regulation/law (treatment) affects only a group of units (the treated units)
and there is another group (the control) that is similar in all respects but that is not affected by the policy. Both
groups are observed over a period that includes the adoption year of the policy. Then, the policy effect is
measured by comparing the change in the mean outcome of the treated cases with the change in the mean
outcome for the untreated controls. This approach can, under some conditions, identify the causal effect of the
policy on the outcome of interest. The implementation of the DiD is complemented by a battery of robustness
tests to corroborate its validity, in particular, the common trend assumption, the absence of any anticipation
and the usual falsification tests.
Since all firms were bound to comply with the LPD once it came into force, disentangling treated and control
units is not immediately straightforward. Therefore, in the current analysis, a slightly different approach from
the standard DiD is used. While all firms are subject to the Directive, they might differ in the level of treatment
intensity. In particular, the firms’ exposure to the LPD B2B is defined on the basis of the average number of
days it takes to collect payment from its customers (credits payment duration – account receivables). The higher
the credits average payment duration was before the introduction of the LPD, the more binding the directive is,
and hence the higher the expected (positive) impact on performance indicators of these firms. On the contrary,
firms that before the introduction of the directive were already collecting their credits in compliance with the
LPD B2B provisions, namely their average payment duration was already lower than 60 days, are expected to
benefit less from the introduction of the directive.
It follows that the impact of the introduction of the LPD is estimated by comparing changes in the outcome of
firms that are exposed more to the LPD to those that are exposed less, before and after the implementation of
the directive.
Furthermore, a second important dimension for identification in the DiD research design is time, namely
observing treated and control units in a pre- and post-intervention period. The staggered implementation of the
LPD across MS allows to have at least three years before and four years after the introduction of the directive.
Therefore, for a given level of exposure to the directive, the impact of the LPD is estimated by comparing
changes of the focus variable for firms in adopting countries to changes of the focus variable in firms in non-
adopting countries.
The DiD model estimated in this study is specified as follows:
̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ × 𝑝𝑜𝑠𝑡𝑐𝑡 + 𝛿𝑥𝑓𝑡 + 𝑓𝑡 + 𝑓𝑓 + 𝑓𝑡𝑠 + 𝑢𝑐𝑠𝑓𝑡 ;
𝑦𝑐𝑠𝑓𝑡 = 𝛼 + 𝛾𝑐𝑟𝑒𝑑𝑖𝑡𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑓2008−2010 (1)
where 𝑦𝑐𝑠𝑓𝑡 is the cash flow of firm f in year t operating in country c and sector s; credits collection f2008−2010
is a continuous variable, measured between 2008 and 2010 (before the LPD adoption), accounting for the
average number of days a firm, f, takes to collect credits from its customers; postct is a binary variable that is
equal to one when the LPD is in place in country c at time t and zero otherwise; 𝑥𝑓𝑡 is a vector of firm-level
explanatory variables which includes also firms’ size (measured by the number of employees) measured at the
baseline year and interacted with the post variable, to account for pre-existing firms differences; ft are time
fixed effects that capture macroeconomic shocks common to all firms in each year t; 𝑓𝑓 are firms fixed effects
that control for unobserved heterogeneity between firms whereas 𝑓𝑡𝑠 are sector by year fixed effects that
account for unobserved factors affecting a given sector in a specific year, and 𝑢𝑓𝑡𝑠 is the error term, double
clustered at the firm and country-by-year level to take into account serial (over time) correlation and within
country-year correlation (Moretti et al., 2019).
The effect of the introduction of the LPD on the outcome of interest is measured by the coefficient 𝛾. In other
words, a positive sign of this parameter indicates that the LPD was effective in increasing the outcome y in
firms more exposed to the directive as compared to less exposed ones, once the LPD was adopted.

11
5. Data
The empirical analysis relies on data extracted from Orbis database distributed by Bureau Van Dijk
(BvD)/Moody’s. Orbis is the largest cross-country firm-level database available for economic and financial
research. However, the coverage varies by firm size, industry, over time and across variables within the data
and this might potentially undermine the reliability of the information, especially for those categories that are
not properly represented. In particular, the industry coverage reflects the non-farm business sector, i.e. all
industries excluding agriculture and public services. Moreover, data at hand covers approximately 10 years,
over which it is possible to construct an unbalanced panel of firms.
Despite its well-known limitations, Orbis is one of the most comprehensive sources of information at the firm
level. In particular, the analysis of the B2B provisions introduced by the LPD offers micro-level information on
the average payment duration. More in detail, it provides information, for each firm, on the average number of
days it takes to pay its creditors (debts payment duration) and on the average number of days needed to collect
its credits (credits payment duration). Both indicators are crucial to define the treatment status for the B2B
evaluation, as described below.

5.1 Country panels

The identification of the final set of countries is based on specific recommendations provided by DG GROW A.2
and on the representativeness of ORBIS data in line with other existing studies (Bajgar et al. 2020) as discussed
in the Interim Report (Ferrara and Ferraresi, 2021).
Orbis has indeed undeniable advantages in terms of data coverage and flexibility and it is the largest database
providing company financials worldwide. However, it also comes with some drawbacks that might hamper the
accuracy of the results. Orbis limitations are well recognised amongst users albeit little information is available
on how large they are and how its representativeness could be better exploited. These issues are at the core of
the study carried out by Bajgar et al. (2020) that provided great guidance in the identification of the final
sample of countries for the present study. The selection procedure they proposed is summarised below.
To begin with, Bajgar et al. (2020) identify countries with available information in Orbis (Austria, Belgium,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Japan, Korea, Netherlands, Norway,
Portugal, Slovenia, Spain, Sweden, the United Kingdom and the United States) and those countries also covered
by other sources (i.e. Multiprod and OECD STAN): Austria, Belgium, Denmark, Finland, France, Germany, Hungary,
Italy, Japan, Netherlands, Norway, Portugal and Sweden. In addition to this, they make several comparisons with
OECD STAN and Multiprod to assess data representativeness along several dimensions, to test volatility over
time and across countries and correlations. At the end of these processes, the countries with the best coverage
(country-year) in the OECD study are Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Italy,
Japan, Netherlands, Norway, Portugal and Sweden. This sample is then further narrowed to a smaller one
comprising Belgium, Finland, France, Germany, Italy, Portugal and Sweden, as “the coverage ranges from over
70% for Belgium (all variables except output), Portugal and Finland to about 40% for France, Italy and
Germany.” (Bajgar et al, 2020 p. 44). Coverage over time is relatively stable for the vast majority of the countries
and also similar across all variables, with a few exceptions.
By combining these findings with DG GROW.A2 instructions for the sample selection and considering the
European extent of the study, the preferred sample over which conducting the final analysis consists of nine
countries and includes Belgium, Finland, France, Germany, Italy, Spain, Hungary, Netherlands, and the United
Kingdom. The proposed sample is a subset of the more comprehensive sample described above plus the UK.
In particular, the sample of the best-covered country-years outlines that:
o the distribution of the sample is less skewed toward large firms, but keeps underestimating
productivity dispersion;
o there is better coverage for manufacturing than for service sectors: the sample skewness
towards large firms tends to be weaker in manufacturing and the correlations in labour
productivity over time tend to be higher in manufacturing
o firms with less than 10 employees are always not well represented.

12
More in detail, the comparisons showed in Bajgar et al. (2020) highlight that countries in the preferred sample
show coverage of at least 50% on the average values of output and value-added (except for the UK that has
no data on output) comparing Orbis to OECD STAN data. When considering the number of observations with
available employment and another variable, the comparison between Orbis and Multiprod shows a relatively
lower number of observations in the former. Moreover, the firm coverage in Orbis changes sharply over time in
the period 2002-2015. It had a one-off drop in 2006 in Portugal and has steadily increased in Germany. More
volatility characterised Hungary and Finland, whilst Italy, Belgium and the Netherlands were relatively stable.
The final dataset is an unbalanced panel (observations are not all observed every year) 4, covering the period
2008-2018, constructed following the methodology proposed by Kalemli-Ozcan et al. (2015) and harmonising
all values according to the annual GDP deflator published in the World Development Indicators.
All in all, the proposed sample is an adequate combination of countries that also offers good performance in
terms of representativeness as emerged from the comparison with other data sources. However, the accuracy
in the sample identification might not be sufficient to overcome Orbis limitations and the analysis is
complemented by a battery of robustness and sensitivity tests, mirroring what has been done in the interim
report.

5.2 Exposure variable

The exposure variable is defined by exploiting the information on the average collection period in days available
in Orbis which is computed as the ratio between Credits and Operating Revenue (×360).
The exposure indicator should be computed over the values of the variable considered before the period of
observation to avoid endogeneity issues due to the exposure embodying the impact of the policy itself. However,
this implies that the number of days needed by a firm to collect its credits may be substantially different if
measured in 2000 or 2010. The point is that the 2008 financial crisis has severely impacted the payment
duration usually taken by firms’ to collect the credits, and, hence, there is a non-negligible risk that using an
exposure measure based on earlier information on credit payment duration could ultimately lead to a biased
conclusion.
For this reason, the exposure indicator has been built by taking the mean value of the average number of days
a firm needs to collect its credits (account receivables) over the period 2008-2010. By doing so, a pre-
determined treatment variable computed over this period would allow the information on the collection of credit
to be similar to that observed in the year of the transposition of the LPD, while assuring that such an indicator
does not vary with common and unobservable shocks which could simultaneously impact the firms’ outcome
variables, generating a reverse-causality type of issues.
Furthermore, it is worth mentioning that the distribution of the average time a firm takes to collect its credits
presents heterogeneous values, with the mean being around 4 months (96 days) and with a minimum of 0 and
a maximum of almost 3 years (1000 days), and quite large variations over time (between 76 and 985). The
reason behind these different values of credits payment duration might range from input errors to cases where
firms experience more severe shocks. Notwithstanding, it is almost impossible to identify the cause of these
non-plausible values; hence, to mitigate the distortion due to potential outliers, the analysis is restricted to firms
that collect their credits within 120 days. 5 The final dataset consists of around 1,255,000 firms, on average
per-year, leading to about 13,000,000 observations over the period 2008-2018. Firms that exit or entered the
panel after the year of adoption are excluded from the analysis, as the former cannot be followed after the
adoption and for the latter it is not possible to construct the treatment variable.
However, given the unique financial situation firms were experiencing over the years 2008-2009 that might
undermine the validity of the research design, the analysis covers the period 2010-2018, hence discarding the
years 2008-2009, whereas the exclusion of 2010 is presented among the robustness tests. The average
number of observations per-year is broadly unchanged and counts about 1,772,059 unique identifiers, albeit
being more balanced across years due to a more homogeneous sampling process of Orbis in more recent years.
Figure 1 displays the number of firms in each country per year and highlights that some countries (Italy, Spain
and France) count a larger number of observations than other countries (accounting for about 70% of the
sample). The distribution of the observations in each country across year is quite stable with the exception of
France and Italy that show a decline in the last four years.

4
The presence of attrition makes any type of survival analysis not feasible.
5
Estimates on the full sample and on other thresholds of credits payment are discussed in Section 7.6 and, reassuringly, yield similar
results.
13
Figure 1. Number of firms by country per year

Note: Number of firms in each country, by year.

The Directive required MS to adopt its provisions by March 16 th, 2013. Each MS transposed the Directive at
different points in time. Croatia, Cyprus, the Czech Republic, Ireland, Italy and Malta transposed in 2012. These
were followed in 2013 by Austria, Bulgaria, Denmark, Greece, Estonia, Finland, Hungary, Latvia, Lithuania,
Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, the UK. Finally, Germany, the Netherlands and
Sweden adopted the new regulations in 2014.
The staggered adoption of the LPD across European countries is mapped in Figure 2, each colour corresponds
to a given adoption year. Countries is light blue are not included in the analysis. Italy adopted the directive at
the end of 2012, but the provisions became effective only in 2013. This is the year in which the bulk of the
adoptions took place (Belgium, Finland, France, Hungary, Spain and the United Kingdom. Germany and the
Netherlands instead implemented the LPD only in 2014.
Figure 2. LPD rollout

Note: LPD adoption in European countries

Suggestive evidence of the directive effectiveness can be derived from the data on account receivables. Figure
3 plots averages and standard deviations of payments duration on a period crossing the implementation dates.
14
In particular, the figure shows the point estimates obtained regressing the average number of days a firm takes
to collect payment from its customers on a set of time indicators, using (t-1), the year before the transposition
of the LPD in each country, as the reference year. Visual inspection suggests that the average number of days
to collect credits relative to (t-1) decreases after the implementation of the directive. A similar pattern is
confirmed also in single country analyses. On average, it is observed a reduction of about 22 days after LPD
adoption.
Figure 3. (Average) Days to collect credits relative to (t-1)

Note: The figure shows the evolution over time of the average number of days to collect credits relative to the year before the transposition
of the LPD (t-1). The x-axis is the time relative to the year of adoption (𝑡). The vertical dashed line identifies the reference year (t-1).

5.3 Cash Flow

The main focus variable is the firm’s cash flow. A company’s ability to generate positive cash flow might be
considered a proxy for its capacity to create value. This is especially true when considering long-term cash flow.
In Orbis, cash flow is given by the sum of net income and depreciation. Given its dynamic nature, cash flow is
expected to be directly affected by the LPD provisions, also in the short term.
To gauge preliminary evidence on the impact of the introduction of the LPD on cash flow it is useful to group
firms in treated and controls. The former consists of firms whose dependency indicator is greater than 60 days
(high exposed firms), whereas the latter includes firms whose dependency indicator is below 60 days (low
exposed). The cut-off between the two groups is selected based on the LPD provisions that set 60-days as a
target value for a fair payment extension.
Figure 4 depicts the evolution of the average cash flow and its standard error for low and high exposed firms.
The shaded area identifies the “adoption time window” in the selected sample. To offer a more comprehensive
overview of Cash Flow dynamics over the study period, the figure consider the whole period 2008-2018. Results
show a non-negligible declining pattern over the crisis period, with the most significant drop in 2011. This trend
confirms expectations on the potential effect of the economic and financial downturn and offers a reasonable
justification to the selection of a narrower time-window for the analysis. Moreover, accounting for country-by-
year and sector-by-year fixed effects, and interacted baseline controls should help clean the effect by
unobservable confounders in a flexible way.

15
Figure 4. Evolution of the cash flow for treated and not-treated firms

Note: Evolution over time (years 2008-2018) of the average cash flow for low and high exposed firms and the respective 95% confidence
intervals.

16
6. Results
The first set of results, obtained when the focus variable is the cash flow, is reported in Table 1. Each column
corresponds to different specifications of equation (1). The baseline specification (column 1) includes firm, year
and sector-by-year fixed effects that change over time and that could affect firms’ cash flow, as well as a set
of interacted controls. Standard errors are clustered at firm level. Model (2) factors in a full set of country-by-
year and nuts-by-year fixed effects, since there might be a non-negligible variation in the public services that
local government offer to businesses. Standard errors are double clustered at firm and country-by-year level.
Model (3) adds the set of interacted controls. Column (4) presents the results when standard errors are clustered
at firm and nace-by-year level, whilst Column (5) excludes also 2010 to isolate the long-lasting effect of the
financial crisis, given that the cash flow might have been influenced by this specific period6. Column (6) and
Column (7) restrict the analysis to the sample of SMEs having less than 50 or less than 250 employees,
respectively. Finally, to check the robustness of the findings to the exclusion of extreme values, in Column (8)
all observations in which the cash flow is below the 5th or above the 95th percentile are dropped, while in Column
(9) observations in which the exposure indicator is below the 5th percentile or above the 95th percentile are
excluded from the estimates.
Table 1 shows that nearly all the γ coefficients are positive but not statistically different from zero at the
conventional levels. Estimates are also comparable in magnitude, albeit a narrower effect is detected when
controlling for interacted covariates (all columns, except Column 2). Interestingly, it is observed that focusing
on enterprises with less than 50 (Column 6) or less than 250 employees yields to a larger effect compared to
the fully specified model (Column 3) 7. A larger effect is observed also when 2010 is not considered (2008-
2010). Trimming the smallest and the largest 5% of the treatment variable has no effect on the estimated γ.

Table 1.The Late-Payment Directive’s Impact on Cash flow

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Baseline Sector- Interacted Sector- Exclude <50 <250 Trim 5% Trim 5%
Year, controls Year 2008-10 empl. empl. Var. Treat.
Country- cluster Var.
Year, Nuts-
Year
Credits collection 1.749 4.989 0.927 1.143 1.196 1.127 3.545 -0.054 0.927
× Post
(1.838) (4.363) (1.684) (1.918) (2.896) (1.090) (4.119) (0.110) (1.684)

N 4780302 5687420 4640824 4780125 4097363 4190769 4528291 4082751 4640824

Note: The variable Credits collection is the average number of days a firm needs to collect its credits measured as the average over the
period 2008-2010, and Post is a binary variable for the late-payment directive’s implementation years. The reported coefficients are the
difference-in-differences estimate of the impact of the LPD on the cash flow of firms that were previously more exposed to late payment,
compared to the less exposed ones. All regressions include firms and year fixed effects. Columns (2) to (7) include the full set of fixed
effects. Standard errors (in parentheses) are clustered at the firm level in Column (1) and double clustered at firm and country-by-year
level in all the remaining columns, but Column (4).

The reported point estimates refer to the effect at the mean value of credits collection. As it will be further
discussed in the next sections, the magnitude of the effect depends on the degree of dependence on the
exposure to payment duration. Furthermore, coefficients in Table 1 refer to the average effect over the post-
treatment period, compared to the pre-treatment.
However, commercial transaction terms might take some time to adapt to the new provisions and have an
impact on firms’ cash flow.
To dig deeper into this aspect the following subsection implements an event-study analysis that allows
disentangling the evolution over time of the effect other than testing the validity of the DiD underlying
assumptions.

6
However, given that the crisis occurred with a different timing across EU countries, this is somehow taken into account by the country by
year fixed effects.
7
However, it must be pointed out that Orbis has non-trivial limitations in representing SMEs. This is particularly true for companies with
less than 20 employees and more marked in some countries. More in general, the estimates obtained with Orbis data can be
considered as a lower bound of the real impact on SMEs. However, it is worth highlighting that for Italy the subset of firms with less
than 250 employees accounts for more than 95% of the whole sample. This is a specific feature of the country whose industrial
structure is characterized by firms of limited size.
17
6.1 Event-study analysis
The existence of a common trend is the key identifying assumption for DiD estimates to be unbiased. In the
framework of this analysis, the assumption implies that in the absence of the LPD shock, firms more exposed
to the Directive would have experienced the same trends in their potential cash flow as less exposed firms.
While this is not testable, an event-study analysis can shed some light on the validity of the research design.
Specifically, following Autor (2003), the interactions of the time dummies and the exposure indicator for pre-
treatment periods are added to the baseline specification of Eq. (1). If the trends in the cash flow in more and
less exposed firms are the same, then the interactions should not be statistically significant, i.e. the DiD
coefficient is not significantly different in the pre-treatment period. An attractive feature of this test is that the
interaction of the time dummies after the treatment (up to five years) with the exposure indicator is informative
and can show whether the effect changes over time. In detail, the following specification is estimated:

𝑦𝑐𝑠𝑓𝑡 = 𝛼 + ∑𝑡−2 𝑡+5

̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ × 𝑦𝑒𝑎𝑟𝜋 ) + ∑𝜏=𝑡 𝛾𝜏 (𝑐𝑟𝑒𝑑𝑖𝑡𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑓2008−2010
𝜋=𝑡−4 𝛾𝜋 (𝑐𝑟𝑒𝑑𝑖𝑡𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑓2008−2010 ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ ×

𝑦𝑒𝑎𝑟𝑡 ) + 𝑓𝑡 + 𝑓𝑓 + 𝑓𝑡𝑠 + 𝑢𝑐𝑠𝑓𝑡 (2)

The reference period is (t-1), the year before the transposition of the LPD into national legislation, which varies
by country. This specification allows testing for the presence of parallel trends in the pre-treatment period,
namely, whether the coefficients associated with the lead (γπ, with π going from (t-4) to (t-2)) are not
statistically different from zero. As already anticipated, this approach is convenient to understand whether the
treatment effect fades, increases, or stays constant over time, depending on the estimated coefficients of the
lags (γτ, with τ going from t to (t+5)).
The estimates and their 95% confidence intervals are plotted in Figure 5. According to the point estimates, there
is no difference in the cash flow in the pre-treatment period. On the contrary, coefficients associated with the
lags turn out to be always positive and statistically significant four (t+4) and five years (t+5) after the adoption,
indicating that the cash flow is growing over time for more exposed firms if compared to less exposed ones.
Taken together, these results seem to validate the research design, as there is no evidence against the presence
of a common trend between treated and control units.
Turning now to the results, it emerges that point estimates range from 3.7 (four years after the adoption) to 4,
statistically significant at 5 and 10% respectively (Table A.1, Column 2). This implies that the introduction of
the LPD has increased the cash flow of firms more exposed to the Directive as compared to firms less exposed
to it. Nevertheless, the magnitude of the effect depends on the degree of exposure to payment duration. For
instance, following estimates for lag 4 (t+4) in Column 2, it turns out that, four years after the LPD transposition,
on average, it is observed an increase in cash flow of about 332 million euros in firms highly exposed to the
directive (i.e. firms that used to collect credits in 120 days) as compared to firms already receiving payment in
compliance with the LPD provisions (i.e. firms that used to collect their credits in less than 30 days). 8 This
represents a 66% increase as compared to the average value of cash flow (200 million euros) in the estimation
sample.
This estimation approach offers some insights in answering the question “What would have been the impact on
cash flow had payment duration been equal to 60 days?” by using the estimated coefficients of equation (2)
and computing the impact of γ setting the credits payment duration to 60 days. Along these lines, picking again
the coefficient associated to lag 4, it turns out that the average aggregate cash flow increased by about 221
million euros respect to the reference year (t-1), corresponding to a 10% increase as compared to the estimation
sample, if payment duration terms were set at 60 days.
More generally, it is possible to compute the impact of the LPD introduction for any payment duration, from 10
to 120 days. Following this approach, and to facilitate the interpretation of the policy impact of the LPD
adoption, the estimated coefficients, four years after LPD implementation (lag 4), for reference values of the
average number of days are presented in Figure 6. The figure shows that the effect of the LPD on average cash
flow is stronger the larger the average number of days a firm was taken to collect payment from its customers
in the past (i.e. before the adoption of the LPD) and it amounts to 3.69 million euro, roughly a 0.9% increase,
for each differential day.

8
This effect is computed as follows: 332 = 3.69 × (120 − 30), and it is statistically significant at the 5 percent level (p-value=0.035).
18
Figure 5. Event Study

Note: The dots are the point estimates, in each year, of the impact of the LPD on the cash flow of firms that were previously more exposed
to late payment, compared to the less exposed ones. The reference period is (t-1), the year before the adoption. Vertical lines are the
respective 95% confidence intervals. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are
double clustered at firm and country-by-year level.

Figure 6.Cash flow and days to collect credits

Note: Impact of the LPD on cash flow for different credit collection periods. The dots are the point estimates for (t+4); the vertical whiskers
are the respective 95% confidence intervals. Model is formalised in Eq (2), average effect is reported in Table A.1, Column 2.

19
7. Robustness checks
This section provides additional evidence on the impact of the LPD, by assessing whether the effects are
heterogeneous by country or by groups of sector. Given the delayed effect detected above, the analysis is
conducted estimating several event study over filtered samples (either by country or by sector) of the whole
dataset.
Results of this exercise are shown in Figure 7, where the estimated coefficient of the impact of the LPD is
reported on the vertical axis, in relation to the average payment duration measured in 2008.

7.1 Heterogeneity by country

Figure 7 presents nine event study analyses, one per country, estimating analogues models as in Figure 5 in all
respect, but for the exclusion of country-by-year fixed effect and the estimate of standard errors which are
clustered at firm level.
Relying on country specific analysis might help isolate country-specific dynamics the LPD had on firms operating
in a given location.
Results shown in Figure 7 corroborate the absence of any anticipation of the LPD in almost all the selected
countries, except for Spain for which we observe two leads that are not statistically different from zero hence
pointing to the existence of different pre-trends between more exposed and less exposed firms.
Furthermore, the findings discussed in the previous section for the post-implementation period are largely
confirmed for Belgium, Spain and Italy, with the latter showing a stable positive and significant coefficient from
(t+1) to (t+5). The effect is instead not distinguishable from zero for the remaining countries.
The reasons behind these heterogeneities might be manifold and could be due to different business practices
characterising each country, as well as the existence of national legislation on payment terms which was more
stringent than the LPD as it was for the Netherlands.
Figure 7. Event study by country

(1) Belgium (2) Germany

20
 (3) Spain (4) Finland

(5) France (6) United Kingdom

(7) Hungary (8) Italy

(9) Netherlands
Note: Black dots are the point estimates, in each year, of the impact of the LPD on the cash flow of firms that were previously more exposed
to late payment, compared to the less exposed ones. The reference period is (t-1), the year before the adoption. Vertical lines are the
respective 95% confidence intervals. All regressions include firm, year, sector-by-year and nuts-by-year fixed effects. Standard errors are
clustered at firm level.

21
7.2 Heterogeneity by sector
In a similar vein, it is possible to measure the impact of the LPD on some specific sectors, as it is very likely
that some industries, such as the manufacturing, might have been affected more than others. Therefore, firms
are grouped according to the macro sector they belong. Eq. (1) and Eq. (2) have been estimated separately in
the three sub-samples: manufacturing, manufacturing and construction (manufacturing+) and services.
Results of this analysis are reported in Table 2. As for the sub-subsample of firms in the manufacturing sector
(Col. 1), it emerges that the coefficient associated with the adoption of the LPD is positive (3.434) albeit not
statistically significant. A similar but smaller effect turns out if the definition of manufacturing sector is further
extended to the construction industry (Column 2). In this case, the coefficient is still positive (2.460) and not
statistically different from zero. On the contrary, firms operating in the service sector do not seem to
significantly benefit from the directive, as the coefficient associated with the LPD is negative but not statistically
significant at the conventional level and smaller in magnitude. By comparing these findings with Table 1 (col.
3), it emerges that for manufacturing the coefficient is almost three times as much in magnitude than the
effect computed over the full sample. This points to the existence of some sectoral specificities of the LPD
impact.

Table 2. The Late-Payment Directive’s Impact on Cash flow by sectors

Manufacturing Manufacturing and Services

Construction
(1) (2) (3)
Credits collection × Post 3.434 2.460 -0.063
(4.695) (3.134) (0.926)

N 881964 1496825 2727390

Note: The variable Credits collection is the average number of days a firm needs to collect its credits measured as the average over the
period 2008-2010, and Post is a binary variable for the late-payment directive’s implementation years. The reported coefficients are the
difference-in-differences estimate of the impact of the LPD on the cash flow of firms that were previously more exposed to late payment,
compared to the less exposed ones. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are
double clustered at firm and country-by-year level.

Sectoral analysis has also confirmed the absence of any statistically significant average treatment effect, a
more thorough investigation of the LPD impact is then provided in Figure 8 that still deals with sectoral
heterogeneities, but in an event-study breadth.
Previous findings are confirmed for manufacturing and manufacturing and constructions where a delayed
positive and significant effect of the LPD is detected especially four and five years after its transposition. A
positive but negligible impact is found also for services. In all the cases, there is no evidence of anticipation as
the lead terms (t-#) are all not distinguishable from zero.
All in all the heterogeneity analyses have unveiled some country and sectoral specificities in the LPD impact. In
particular, the main effect seems to be driven by sectors belonging the manufacturing and construction area.

7.3 Market linkages

The increase in firms’ cash flows following the adoption of the directive describes the direct effects. In an
industrialized economy, however, sectors are highly interconnected through input-output linkages and changes
in one sector can likely reverberate to other sectors. Therefore, the positive impact of the directive on firms’
liquidity can spiral on other sectors whose firms have important trade relationships. However, a measure of
market linkages at the firm level would require knowing all bilateral transactions between firms, which – with
the data at hand – is almost impossible to compute. To overcome these limitations, it is possible to collapse the
analysis at the sectoral level and adopt a modified version of Acemoglu et al. (2016) to construct two indicators
for the degree of interconnection that an affected sector has with its sellers and its buyers.

22
More in details, for each sector, s, a measure of “spillover supplier” is defined by considering the share of goods
and services that sector s purchases from all other sectors. This approach allows ranking the industries to which
sector s is more linked in terms of commercial transactions, thereby identifying the main sector’s suppliers as
those industries that lie above the 75th percentile of the above-defined distribution. In this context, a measure
of supplier credit collection is derived as the average payment duration of the selected main sector’s suppliers.
In a similar vein, the indicator “spillover customer” can be defined as the average number of days to collect
credits computed over the pool of the main sector’s customers, i.e. those industries purchasing from sector s a
share of goods and services greater than the 75th percentile of the distribution of its commercial transactions.

Figure 8. Event study by sector

(a) Manufacturing (b) Manufacturing and Constructions

(c) Services
Note: Black dots are the point estimates, in each year, of the impact of the LPD on the cash flow of firms that were previously more exposed
to late payment, compared to the less exposed ones. The reference period is (t-1), the year before the adoption. Vertical lines are the
respective 95% confidence intervals. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are
double clustered at firm and country-by-year level.

To roughly estimate the effect of the LPD along market linkages, these spillovers measures are then interacted
with the variable post and included in a model similar to the baseline regression (equation 1) estimated on
country subsamples. Results are reported in Table A.2. In particular, column (1) replicates the baseline
specification on the sample collapsed on sectoral data. Column (2) includes the spillover supplier indicator,
whereas column (3) factors in the spillover customer indicator. Finally, in column (4), all indicators are included.

23
What stands out in the table is that the two spillover variables seem not to influence the main result of the
analysis in Belgium (panel a), Finland (panel d), France (panel e), United Kingdom (panel f), Hungary (panel g)
and Italy (panel h). Indeed, they are never statistically significant at the conventional level both when they are
included separately (Columns (2) and (3)) or jointly (column (4)). For the remaining countries, namely Germany
(panel b), Spain (panel c) and the Netherlands (panel i), there is a significant association of spillover variables
with firms’ cash flow after the adoption of the LPD. In particular, there exists a negative and significant influence
exerted by upstream sectors in Germany which is robust also to the inclusion of the customer spillover variable.
This suggests that the cash flow of a sector after the adoption of the LPD is negatively associated with the
average payment duration of its top supplier sectors. The influence of both upstream and downstream sectors
is instead positive in the Netherlands, even if the effect fades when both customer and supplier spillovers are
considered. A positive association with cashflow is also detected in Spain, for customer spillovers only.
Moreover, the estimated coefficient of credits Collection×Post is positive and significant at conventional levels
only in UK and in Italy (for the baseline model and the one considering supplier spillovers), thus indicating an
increase in cashflow for sectors that used to take longer to collect their credits before the adoption of the LPD,
which are indeedose that benefited more from its provisions.
A graphical representation of upstream and downstream market linkages by country, is plotted in Figure 9 which
highlights that when accounting for both spillovers there is a statistically significant effect only for spillover
supplier in Germany and spillover customer in Spain.
Figure 9 Market linkages

Note: The figure plots point estimates as from Table A.2 (Column 4). The symbols are the point estimates, in each country, of the impact
of the LPD on the cash flow of firms at sectoral level. The vertical lines are 90% confidence intervals. Post is a binary variable for the late-
payment directive’s implementation years. Credits collection is the average number of days a sector was taking to collect its credits. Supplier
credits collection is the average payment duration of the selected main sector’s suppliers. Customer credits collection is the average
payment duration of the selected main sector’s customers. Estimates include robust standard errors.

However, a non-negligible limitation of this sectoral analysis is that the sample is very limited, and, hence, the
efficiency of the estimators might be severely undermined. Therefore, the results must be read with caution
and shall be interpreted more as suggestive evidence rather than in a proper causal link.

7.4 Results on other outcome variables

Previous sections have uncovered evidence that the LPD increased cash flow in firms previously experiencing
longer collection periods, thus allowing firms to increase their liquidity especially four and five years after the
transposition. This could also be reflected on other relevant indicators. To look into this hypothesis, similar
models to (1) were estimated, but using as dependent variables the following firms’ performance indicators:
investment, sales and tangible assets.
These regressions are reported in Table 3, col. 1 to Column 3, and mirror the model showed in Table 1 Column
3. The point estimates of the variable Credits collection × post t are positive but indistinguishable from zero
for all the three alternative outcome variables.

24
Table 3. The Late-Payment Directive’s Impact on other outcomes

Investment Sales Tangible Assets

(1) (2) (3)
Credits collection × Post 2.873 28.700 5.315
(2.513) (24.498) (5.825)

N 1583557 4768924 4701562

Note: The variable Credits collection is the average number of days a firm needs to collect its credits measured as the average over the
period 2008-2010, and Post is a binary variable for the late-payment directive’s implementation years. The reported coefficients are the
difference-in-differences estimate of the impact of the LPD on the cash flow of firms that were previously more exposed to late payment,
compared to the less exposed ones. The reported coefficients are the difference-in-differences estimate of the impact of the LPD on
investment (col. 1), sales (col. 2) and tangible assets (col. 3) of firms that were previously more exposed to late payment, compared to the
less exposed ones. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are double clustered at
firm and country-by-year level.

However, when moving to the event study analysis it comes out that a positive and significant effect is also
found on Sales 1 to 5 years after the implementation and on Tangible assets, only in (t+3). However, in both
cases the parallel trend assumption is violated as the lead (t-3) is statistically different from zero.
Figure 10. Event study on other outcomes

(a) Investments (b) Sales

(c) Tangible Assets

Note: Black dots are the point estimates, in each year, of the impact of the LPD on the cash flow of firms that were previously more exposed
to late payment, compared to the less exposed ones. The reference period is (t-1), the year before the adoption. Vertical lines are the
respective 95% confidence intervals. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are
double clustered at firm and country-by-year level.

25
7.5 Other robustness checks
Since outliers could represent a problem in cross-country/cross-industry time-series data, an additional check
investigates whether the main findings are sensitive to the exclusion of a single country or sector. To do so,
model (1) is re-estimated by excluding countries (Figure 10) or sectors (Figure 11) one-by-one.
The main conclusions of the analysis remain unaffected by these exclusions.
Figure 11. Exclusion of a country

Note: The horizontal axis reports the country excluded from the estimation. Coefficients (tick line) estimated as from Equation 1. Dotted
lines represent 95% confidence intervals.

Figure 12. Exclusion of a sector

Note: The horizontal axis reports the sector (NACE 2-digit) excluded from the estimation. Coefficients (tick line) estimated as from Equation
1. Dashed lines represent 95% confidence intervals.

7.6 Sensitivity checks

In this section, the validity of the previous results is assessed through a battery of robustness checks that are
intended to address possible issues related to the research design that could bias the baseline estimates.

26
Different “exposure” indicator
In the proposed research strategy, a possible concern is due to the reference period chosen for the construction
of the dependence indicator. In all previous regressions, the indicator gauges a firm’s exposure to the directive
over the period 2008-2010. To check whether results are driven by the choice of that specific time-span, model
(1) was re-estimated using the information on time taken by each firm to collect its credit over the period 2004-
2008. Results are reported in Table 4, Columns (1) to (9), and, reassuringly, are similar to those obtained in the
baseline specification, thus suggesting that findings are not sensitive to the period considered to compute the
exposure indicator.

Table 4. The Late-Payment Directive’s Impact on Cash flow and the exposure indicator measured in 2004-2008
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Baseline Sector- Interacted Sector- Exclude <50 <250 Trim 5% Trim 5%
Year, controls Year 2008-10 empl. empl. Var. Treat.
Country- cluster Var.
Year,
Nuts-Year
Credits collection 10.641*** 5.236 6.851 7.680*** 11.044* 2.442 5.416 -0.071 6.851
× Post
(0.841) (4.956) (5.448) (1.270) (6.588) (2.099) (4.280) (0.111) (5.448)

N 4385692 5209323 4259671 4385523 3765059 3834549 4153664 3740067 4259671

Note: The variable Credits collection is the average number of days a firm needs to collect its credits measured as the average over the
period 2004-2008, and Post is a binary variable for the late-payment directive’s implementation years. The reported coefficients are the
difference-in-differences estimate of the impact of the LPD on the cash flow of firms that were previously more exposed to late payment,
compared to the less exposed ones. All regressions include firms and year fixed effects. Columns (2) to (7) include the full set of fixed
effects. Standard errors (in parentheses) are clustered at the firm level in Column (1) and double clustered at firm and country-by-year
level in all the remaining columns, but Column (4).

Different thresholds of credit collection terms

As was already alluded to, the dataset covers all firms that used to collect their credits within 120 days.
However, it might be argued that, in practice, the analysis is based only on a portion of the observations
potentially available. In turn, this might create a potential bias in the estimates as firms that collected their
credits in a period greater than 120 days are not considered in the analysis.
To mitigate such a concern, Figure A.1 replicates event-study estimates by setting different thresholds of days
taken by firms to collect their credits. In particular, panel (a) uses the sample of firms that, on average, collect
their credit within 90 days; in panel (b) the threshold is set equal to 150; panel (c) shows results based on firms
with credits collected within 180 days; panel (d) considers a payment period of 210 days and, finally, in panel
(e) all firms are included. As it can be noticed, previous findings are largely confirmed, thus suggesting that
focusing on the 120 days as a threshold for defining the sample does not lead to biased estimates. A slightly
different pattern, basically pointing to a zero effect, is found when the full sample is considered, which however
might pick up the effect of potential outliers.
To sum up, the analyses carried out in this section have strengthened the evidence of a positive lagged
relationship between the introduction of the LPD and the increase of the cash flow in firms more exposed to
the directive, as compared to those less exposed. In most of the cases, the results indicate that it is very likely
that such an effect is due to the shock caused by the introduction of the Directive, as we find no evidence of
other plausible explanations that clearly hold as an argument against the causal interpretation of this
relationship.

27
8. Conclusions
One of the main concerns of policy makers is that long payment delays might increase administrative and
financial costs. By absorbing considerably firms’ cash and other liquid assets, long payment durations might
generate liquidity problems that can force firms to cut back on employment, investment and exit from the
market.
This report examined whether the introduction of a new set of harmonised rules combating long payment
duration in the EU might have reduced the liquidity risk for firms. To test this hypothesis, the report focused on
the case of Government to Business transactions by considering the response of European firms to the adoption
of the Directive 2011/7/EU, aimed at combating late payment in commercial transactions. The most challenging
task in policy evaluation is to credibly identify variations in the data that allow relationships between the policy
of interest and the outcome variables to be interpreted as causal.
This study identified such a relationship by arguing that the LPD could have affected firms differently along
with their average values of days usually taken to collect their credits. The intuition is that firms for which the
average time necessary to collect their credit was by far larger than that established by the provisions of the
directive were naturally more exposed to payments delay, and, therefore likely to benefit the most from the
introduction of the LPD. The evidence presented in this report suggests that firms more exposed to the LPD
experienced a significant increase in their liquidity four and five years after its introduction. Moreover, the impact
of the LPD on aggregate cash flow is stronger the larger the average number of days a firm was taken to collect
payment from its customers in the past (i.e. before the outset of the directive).
In particular, four years after the adoption of the LPD the average cash flow, in highly exposed companies, is
60% higher than its value the year before the introduction of the directive, when comparing firms more exposed
to payment delays (i.e. firms that used to collect credits in 120 days) with less exposed ones, namely firms
already receiving payment in compliance with the LPD provisions (i.e. firms that used to collect their credits in
less than 30 days). Furthermore, estimates over the selected sample of firms point out that, on average, the
LPD yields an increase in aggregate cash flow of approximately 3.69 million euro, roughly a 0.9% increase, for
each differential day.
This effect is more marked for firms operating in the manufacturing and construction sectors, characterized by
a strong presence of SMEs in the relevant supply chains.
While these findings might help shed light on the impact of LPD on firms’ outcomes, the main limitation is that
results derive from a selected set of countries, which might be not equally represented in the Orbis database.
Moreover, countries and firms’ coverage is also likely to be different across sectors-time and eventually some
variables might be weakly measured by data providers. The effect of these potential weaknesses in the data is
partially mitigated by resorting to a number of robustness and sensitivity checks that all confirm the baseline
results.
Despite these limitations, the analysis shed light on how fostering more discipline in firms' payment terms, the
adoption of LPD appears to have had considerable and beneficial repercussions on the economy even if it was
not effective immediately.
Predictable payment terms within a “standard” time range (30 -60 days) increases businesses’ cash flow and
sales. The study has shown that this mechanism is effective. Therefore it has to be preserved and enforced for
the benefit of EU businesses.

28
9. Appendix

9.1 Tables

Table A.1 Time event analysis on cash flow. Treatment is days to collect credit.
(1) (2) (3) (4) (5)
<=90 <=120 <=150 <=180 All
Credits collection × (t-4) -5.900 -3.823 -3.127 -2.775 0.463
(4.693) (3.468) (2.518) (2.071) (2.213)
Credits collection × (t-3) 4.003 3.346 1.956 1.319 -2.061***
(3.178) (2.199) (1.340) (0.977) (0.591)
Credits collection × (t-2) -13.373 -10.956 -4.638 -3.118 4.239
(9.168) (7.753) (3.810) (2.879) (2.699)
Credits collection × (t) 2.967 2.515 1.644 1.092 -1.180
(2.146) (1.638) (1.012) (0.730) (0.717)
Credits collection × (t+1) 1.207 1.135 0.693 0.346 -1.124
(1.776) (1.078) (0.876) (0.771) (0.680)
Credits collection × (t+2) -1.524 -0.195 -0.440 -0.598 -1.609
(6.827) (4.737) (3.205) (2.566) (0.969)
Credits collection × (t+3) 2.365 2.644 1.304 1.303 -1.004**
(4.528) (3.297) (2.051) (1.830) (0.491)
Credits collection × (t+4) 4.522** 3.690** 2.124* 1.766 -0.742*
(2.210) (1.717) (1.127) (1.087) (0.425)
Credits collection × (t+5) 5.074* 4.094* 2.395* 2.035 -0.535
(2.993) (2.138) (1.324) (1.246) (0.474)
N 4896341 5687420 6219597 6525297 7081471
Note: The variable Credits collection is the average number of days a firm needs to collect its credits measured as the average over the
period 2004-2008. Variables (t-x) are dummies equal to 1, x years before the implementation of the directive. Variables (t-y) are dummies
equal to 1, y years after the implementation of the directive. The year before the adoption (t-1) is taken as reference. The reported
coefficients are the difference-in-differences estimates of the impact of the LPD on the cash flow of firms that were previously more
exposed to late payment, compared to the less exposed ones. All regressions include the full set of fixed effects, as from Table 1- Column
3. Standard errors are double clustered at firm and country-by-year level. Columns show how results vary according to a different threshold
set on the exposure variable. Column (5) makes no selection on the maximum value of observed credits collection period.

29
Table A.2: The Late-Payment Directive’s Impact on cash flow controlling for spillover effects
(a) Belgium

(1) (2) (3) (4)

Credits collection × Post 5.732 5.935 5.623 5.294

(9.690) (9.842) (11.742) (11.750)

Supplier Credits collection × Post -37.071 -41.795

(61.405) (65.992)

Customer Credit collection × Post 1.736 10.612

(52.644) (56.286)

N 181 181 181 181

(b) Germany

(1) (2) (3) (4)

Credits collection × Post -0.079 -0.070 -0.096 -0.087

(0.104) (0.106) (0.126) (0.127)

Supplier Credits collection × Post -2.992** -2.993**

(1.446) (1.470)

Customer Credit collection × Post -1.565 -1.565

(2.336) (2.335)

N 352 352 352 352

(c) Spain

(1) (2) (3) (4)

Credits collection × Post 56.888 47.625 57.250 46.952

(47.867) (38.610) (48.067) (38.426)

Supplier Credits collection × Post -818.942 -917.119

(888.778) (926.420)

Customer Credit collection × Post 223.152* 269.740*

(121.097) (151.942)

N 352 352 352 352

30
(d) Finland

(1) (2) (3) (4)

Credits collection × Post -67.780 -65.510 -73.790 -74.037

(66.680) (63.731) (69.230) (69.510)

Supplier Credits collection × Post -325.918 -629.001

(629.283) (810.540)

Customer Credit collection × Post 420.752 744.938

(572.413) (784.403)

N 352 352 352 352

(e) France

(1) (2) (3) (4)

Credits collection × Post 6.432 3.436 3.881 -4.305

(13.555) (13.230) (19.846) (16.706)

Supplier Credits collection × Post 227.891 281.602

(312.466) (281.900)

Customer Credit collection × Post -21.093 -58.166

(107.423) (91.090)

N 352 352 352 352

(f) United Kingdom

(1) (2) (3) (4)

Credits collection × Post 251.296* 276.743* 250.429* 272.644*

(139.002) (153.221) (138.852) (151.956)

Supplier Credits collection × Post -3477.046 -3007.794

(2229.697) (2035.747)

Customer Credit collection × Post -1189.170 -912.393

(846.943) (744.633)

N 352 352 352 352

31
(g) Hungary

(1) (2) (3) (4)

Credits collection × Post 0.352 0.488 -0.049 0.140

(0.960) (1.047) (0.856) (0.892)

Supplier Credits collection × Post 27.996 18.949

(33.753) (26.734)

Customer Credit collection × Post 7.484 5.682

(8.632) (7.104)

N 352 352 352 352

(h) Italy

(1) (2) (3) (4)

Credits collection × Post 5.196* 5.148* 4.694 4.513

(2.992) (3.075) (3.296) (3.234)

Supplier Credits collection × Post -13.888 17.206

(32.662) (35.836)

Customer Credit collection × Post -14.943 -22.073

(20.998) (26.152)

N 352 352 352 352

(i) the Netherlands

(1) (2) (3) (4)

Credits collection × Post -3.791 -3.500 -4.118 -3.986

(7.813) (7.662) (7.793) (7.836)

Supplier Credits collection × Post 376.077** 109.983

(190.607) (172.093)

Customer Credit collection × Post 85.584* 73.122

(51.845) (60.219)

N 336 336 336 336

Note: Credits collection is the average number of days a sector was taking to collect its credits. Post is a binary variable for the late-
payment directive’s implementation years in each country. Supplier credits collection is the average payment duration of the selected main
sector’s suppliers. Customer credits collection is the average payment duration of the selected main sector’s customers. Column 1 estimates
the baseline model. Colum 2 and Column 3 add, respectively, Supplier and Customer Credits Collection measures interacted with Post.
Column 4 shows the estimation of the fully specified model. All regressions include year and fixed effects. Robust standard errors in
parentheses.

32
9.2 Figures

Figure A.1 Event study on Cash flow with different thresholds of the treatment variable

(a) Exposure <=90 (b) Exposure <=150

(c) Exposure <=180 (d) Exposure <=210

(e) No selection on exposure

Note: Black dots are the point estimates, in each year, of the impact of the LPD on the cash flow of firms that were previously more exposed
to late payment, compared to the less exposed ones. The reference period is (t-1), the year before the adoption. Vertical lines are the
respective 95% confidence intervals. All regressions include the full set of fixed effects, as from Table 1- Column 3. Standard errors are
double clustered at firm and country-by-year level. Different panels show how results vary according to the threshold set for the exposure
variable: 90, 150, 180, 210 days or no selection. The analyses presented in the main text refer to a threshold of 120 days.

33
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List of abbreviations and definitions
B2B Business to Business
DiD Difference-in-Differences
LPD Late Payment Directive
MS Member States
PA2B Government to Business
SME Small and medium-sized enterprises

36
List of tables
Table 1.The Late-Payment Directive’s Impact on Cash flow ............................................................................................................... 17
Table 2. The Late-Payment Directive’s Impact on Cash flow by sectors ..................................................................................... 22
Table 3. The Late-Payment Directive’s Impact on other outcomes ................................................................................................ 25
Table 4. The Late-Payment Directive’s Impact on Cash flow and the exposure indicator measured in 2004-
2008 ........................................................................................................................................................................................................................................ 27
Table A.1 Time event analysis on cash flow. Treatment is days to collect credit. ............................................................ 29
Table A.2: The Late-Payment Directive’s Impact on cash flow controlling for spillover effects ................................. 30

37
List of figures
Figure 1. Number of firms by country per year ........................................................................................................................................... 14
Figure 2. LPD rollout ...................................................................................................................................................................................................... 14
Figure 3. (Average) Days to collect credits relative to (t-1) ................................................................................................................. 15
Figure 4. Evolution of the cash flow for treated and not-treated firms ...................................................................................... 16
Figure 5. Event Study .................................................................................................................................................................................................... 19
Figure 6.Cash flow and days to collect credits ............................................................................................................................................. 19
Figure 7. Event study by country ........................................................................................................................................................................... 20
Figure 8. Event study by sector .............................................................................................................................................................................. 23
Figure 9 Market linkages ............................................................................................................................................................................................ 24
Figure 10. Event study on other outcomes ..................................................................................................................................................... 25
Figure 11. Exclusion of a country .......................................................................................................................................................................... 26
Figure 12. Exclusion of a sector ............................................................................................................................................................................. 26
Figure A.1 Event study on Cash flow with different thresholds of the treatment variable ............................................ 33

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