Late Payment Directive

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 recasting the legislation on combating late payment in commercial transactions.

BACKGROUND

The Late Payment Directive covers all debts incurred in commercial transactions (it also applies public authorities), it is designed to combat the late payment for goods or services within the European Union. It does this by laying down common minimum requirements consistent with the principles of subsidiarity and proportionality. Late payments constitute a major obstacle to the free movement of goods and services in the single market and could substantially distort competition. It is a particular problem for smaller businesses, which are more financially vulnerable and where delayed payment can have crippling effects.

REVISION OF THE LATE PAYMENTS DIRECTIVE

Previously the rules on late payments were under Directive 2000/35 and this new legislation repeals and modernises these old rules.

Main Provisions
EU countries shall ensure that if the date or period for payment is not fixed in the contract, the creditor is entitled to interest for late payment upon the expiry of any of the following time-limits:

• 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment ;
• if the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of receipt of the goods or services.

In addition, countries shall ensure that:

• the maximum duration of the procedure of acceptance or verification does not exceed 30 calendar days from the date of receipt of the goods or services, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor;
• the period for payment fixed in the contract does not exceed 60 calendar days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor.

Compensation
When interest for late payment does become payable in commercial transactions, the creditor is entitled to obtain a minimum fixed amount of EUR 40 . This fixed sum is payable without the necessity of a reminder and as compensation for the creditor’s own recovery costs. In addition the creditor will be entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment. This could include expenses incurred, inter alia, in instructing a lawyer or employing a debt collection agency.

Public Authorities
In commercial transactions where the debtor is a public authority and a certain  time period has expired, the creditor is entitled to charge interest, without the necessity of a reminder, where the following conditions are satisfied:

•  the period for payment does not exceed any of the following time-limits: i) 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment; ii) if the date of receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of the receipt of the goods or services;
• the date of receipt of the invoice is not subject to a contractual agreement between debtor and creditor.
• Countries may extend the time-limits up to a maximum of 60 calendar days for:
• any public authority which carries out economic activities of an industrial or commercial nature by offering goods or services on the market and which is subject as a public undertaking to the transparency requirements laid down in Commission Directive 2006/111/EC;
• public entities providing healthcare which are duly recognised for that purpose.

Unfair Contract Terms
The Directive should prohibit abuse of freedom of contract to the disadvantage of the creditor.
Where a term in a contract or a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is not justified on the grounds of the terms granted to the debtor, or it mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor, it may be regarded as constituting such an abuse. For that purpose, any contract term or practice grossly deviating from good commercial practice, contrary to good faith and fair dealing, should be regarded as unfair to the creditor.

For example the follow contract terms are likely to be considered ‘grossly unfair’:

• exclusion of the right to charge interest
• the exclusion of the right to compensation for recovery costs

Transparency
Member States shall ensure transparency about the rights and obligations stemming from this Directive, for example by making publicly available the applicable rate of statutory interest for late payment. 

Payment Schedules & Claims
Where instalments are not paid by the agreed date, interest and compensation provided for in this Directive shall be calculated solely on the basis of overdue amounts.
To ensure parties can enforce full payment each country’s shall also certify that an enforceable title can be obtained, including through an expedited procedure and irrespective of the amount of the debt. They shall carry out this duty in accordance with their respective national laws, regulations and administrative provisions.

ENFORCEMENT

The Directive comes into force on 15th of March 2011 but each country has until 16 March 2013 to implement its provisions, at that point the old Directive will be officially repealed.  It’s also worth noting that it’s at each country’s discretion whether contracts concluded prior to the 16 March 2013 are covered by the new rules.

Linked Stories

Euro-Parliament strikes at Europe’s late payment culture

Late business payments: MEPs want deadlines