On 9 September 2026 the European Commission published the Public Procurement Act, the biggest overhaul of EU procurement law in more than a decade. Much of it is aimed squarely at one problem: small and medium companies win a disproportionately small share of the roughly €2 trillion that European public bodies spend every year, around 14 to 15% of EU GDP.
The reform attacks that from the access side. Contracts split into smaller lots, reduced guarantee requirements, simpler procedures, one directly applicable Regulation replacing three directives and twenty-seven national interpretations of them.
None of which addresses what happens after an SME actually wins. A public contract is a promise to deliver goods that do not exist yet, paid for weeks after they arrive. Making the tender easier to win does not make it easier to fund, and for a smaller supplier the funding question is usually the harder one.
What the Public Procurement Act changes
The proposal repeals the three 2014 directives and replaces them with a single Regulation of around 141 articles, applying directly in every member state with no national transposition. That alone removes a layer of fragmentation that has quietly kept smaller firms out of cross-border bidding.
For SMEs the relevant provisions are the practical ones. Member states may require contracts to be divided into lots, which is the single most effective way to make a large tender bidable by a smaller company. Guarantee requirements are reduced. One new procedure makes eligibility criteria optional, so that where a buyer sets none, any operator not subject to mandatory exclusion can take part.
The European Court of Auditors had already reported that competition for public contracts declined over the previous decade and that the 2014 reform's goals of simpler procedures and wider participation were not met. Procedures got longer instead.
Two things are worth keeping straight. This is a proposal, not law: it still has to pass the Parliament and the Council, with negotiations aimed at concluding around the end of 2027 and realistic application somewhere around 2029 or 2030. And it changes who can bid, not who can afford to deliver.
The €1.5M school tender that requires €1.2M upfront
Take a European electronics distributor that wins a €1.5M framework to supply equipment to schools. The economics of public hardware supply are thin, so assume €1.2M of cost of goods and €300,000 of gross margin.
The manufacturer's terms are the usual ones: 30% on order, 70% before shipment. The contracting authority's terms are also the usual ones: payment after delivery, on invoice.
| Day | Event | Cash movement |
|---|---|---|
| 0 | Contract awarded | |
| 10 | Supplier deposit due | €360,000 out |
| 60 | Production complete, balance due before shipment | €840,000 out |
| 90 | Equipment delivered to schools, invoice issued | |
| 160 | Authority pays | €1,500,000 in |
The distributor funds €1.2M for roughly five months. It has a signed contract with a public body, a defined delivery scope and a known margin, and it still needs more than a million euros of its own cash to get to the invoice.
For most SMEs that is simply the end of the conversation. The bid either does not happen, or it happens for a fraction of the available lots.
Public buyers pay late, and everyone has decided to live with it
This is where the sector differs from retail, and not in the supplier's favour.
The rule is clear. Under EU late payment law, public authorities must pay within 30 days, extendable to 60 only in narrow cases such as public healthcare. The practice is something else entirely. Intrum's European Payment Report 2026 puts average business-to-government payment terms at 70 days, unchanged, while B2B terms stretched from 60 to 63. The EU Payment Observatory found that public authorities pay later than private companies in every single member state.
So the legal maximum is 30 days and the working average is more than twice that. In 2024 more than half of EU companies reported difficulties caused by late payment, and roughly a quarter of European bankruptcies are linked to customers not paying on time.
Suppliers are entitled to statutory interest on overdue public invoices. Almost nobody claims it, because the debtor is also the buyer you want the next framework from.
Plan on the legal term and you will be wrong. Plan on 70 days plus a delivery verification period, and you will be roughly right.
Why public contracts are harder to finance than retail orders
Here is the part most trade finance marketing skips, and it matters more than any of the above.
Consumer brands generally have room to absorb financing cost. A skincare product costing €4 and wholesaling at €12.50 can carry a financing charge without anyone noticing. Public sector distribution frequently cannot. On the €1.5M tender above, at a 20% gross margin, every 1% of contract value spent on financing consumes 5% of the total margin on the deal.
A public tender is a fixed price you cannot revisit once awarded. This is the single most common mistake we see when suppliers first approach a large public contract: the funding cost gets treated as something to sort out after the award, when it was a line item in the bid all along.
The correct sequence is to price the money at the same time you price the goods.
There is a compensating advantage, and it is a real one. The receivable is excellent. A ministry, a municipality or a school board pays slowly but it pays, which is a materially better credit profile than a young retailer or a growing brand. Transaction-based underwriting cares about exactly that, because what is being assessed is the trade and the counterparty rather than the supplier's balance sheet. Public contracts are slow, not risky, and those are very different problems.
This is not just a school equipment story
The same shape appears across most of what the public sector buys as goods rather than services:
- - IT hardware and networking equipment
- - Classroom and school equipment
- - Medical devices and clinical consumables
- - Office and institutional furniture
- - Workplace and safety equipment
- - Mobility and fleet-related goods
- - Facility and building products
Every one of these runs through a distributor or specialist supplier who buys from manufacturers on prepayment terms and sells to an institution on post-delivery terms. Where the goods are imported, add six weeks of shipping to the timeline and a currency exposure on top.
If the Public Procurement Act works as intended and more of these contracts get split into SME-sized lots, this gap does not shrink. It multiplies across far more suppliers.
Financing the trade instead of the supplier
A bank facility underwrites the company: three years of accounts, EBITDA, collateral, often a personal guarantee, sized once a year. A distributor with €4M of turnover and a €1.5M contract in hand is asking for a facility that looks enormous against its history and entirely sensible against its order book. Those two readings produce different answers, and the balance sheet one usually wins.
Transaction-based trade finance reads the order book instead. At OceanX we buy the goods from the manufacturer and resell them to the supplier, so the manufacturer's deposit and pre-shipment balance are paid on time without the distributor fronting them.
Open Credit is the structure that fits most public contracts: we pay the manufacturer, the goods ship to the supplier or directly onward, and the supplier pays us over the agreed term, timed against when the authority actually pays rather than when it is contractually supposed to.
Master Distribution, where the buyer's purchase order is issued to OceanX directly and we invoice the buyer, works cleanly in retail. In public procurement it depends on the tender documents. Contracting authorities restrict assignment, subcontracting and change of contracting party, and those clauses vary by member state and by buyer. It is often workable and sometimes not, and that has to be checked against the specific tender before anyone builds a bid around it. Anyone who tells you otherwise has not read many procurement contracts.
Two honest limits. Terms shorter than three months rarely work once production and shipping are counted, and on thin-margin public contracts the financing cost has to fit inside the bid, which is a pricing exercise we would rather do with you before submission than explain after award.
The point
Europe has spent a decade trying to get more public money into the hands of smaller companies, and the new Public Procurement Act is the most serious attempt yet. It lowers the barrier to bidding.
The barrier to delivering is made of cash, and no procurement regulation has ever moved it. A supplier that can win a €1.5M framework but cannot fund €1.2M of manufacturing will not bid, or will bid for one lot where it could have taken three.
Access to public contracts is being reformed. Access to the working capital that turns those contracts into delivered goods is not, and that is the part suppliers have to solve themselves.
FAQ
What does the EU Public Procurement Act change for SMEs?
Published on 9 September 2026, it replaces three 2014 directives with one directly applicable Regulation. For SMEs the key measures are division of contracts into smaller lots, reduced guarantee requirements and simpler procedures. It remains a proposal, with realistic application around 2029 to 2030.
How quickly do public authorities actually pay suppliers?
EU law requires payment within 30 days, extendable to 60 in narrow cases such as public healthcare. In practice, Intrum's European Payment Report 2026 puts average business-to-government terms at 70 days, and the EU Payment Observatory finds public authorities pay later than private companies in every member state.
Why is winning a public tender a cash flow problem?
Manufacturers require a deposit at order and the balance before shipment, while the contracting authority pays after delivery and invoice verification. On a €1.5M supply contract the supplier can fund more than €1.2M for roughly five months before receiving anything.
Can financing costs be recovered on a fixed-price public contract?
Only if they are in the bid. A tender price cannot be revisited after award, so funding cost must be priced alongside the goods. On a 20% gross margin contract, every 1% of contract value spent on financing consumes about 5% of the total margin on the deal.
Is public sector credit risk higher than commercial risk?
Generally lower. Ministries, municipalities and school boards pay slowly but reliably, which makes them a stronger counterparty than many private buyers. Transaction-based finance assesses the contract and the buyer rather than only the supplier's balance sheet, so slow payment is a timing question rather than a credit one.
Bidding on a public contract you would need to pre-finance? Send us the tender terms and the supplier quote, and we will tell you what the funding costs before you price the bid: book a call with Arjo.
Arjo Huijbregts is responsible for Business Development of Europe at OceanX AI. He structures inventory and trade finance deals for suppliers and consumer brands across Europe.