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European Council adopts new rules on combating late payment in commercial transactions

The European Council today (24/01/2011) adopted a directive laying down new rules on late payment in commercial transactions. The directive establishes specific deadlines for the payment of invoices and the right to compensation in cases of late payment in all commercial transactions irrespective of whether they are carried out between private or public undertakings or between
undertakings and public authorities. It will increase the protection of creditors and contribute to the better functioning of the EU's internal market, thereby fostering the competitiveness of businesses and in particular of small and medium-sized enterprises (SMEs).

Payment periods

Under the new rules, a creditor will be entitled to interest for late payment without the necessity of a reminder if, having fulfilled his contractual obligations, he has not received the amount due on time, unless the debtor is not responsible for the delay. The creditor will be entitled to interest for late payment from the day following the date or the end of the period for payment fixed in the contract.

If the date or period for payment is not fixed in the contract, the creditor will be entitled to interest for late payment after 30 days following the date of receipt of the invoice. If the date of the receipt of the invoice is uncertain, 30 days after the date of receipt of the goods or services.

If the debtor receives the invoice earlier than the goods or the services, 30 days after the receipt of the goods or services.

As a general rule, in transactions between undertakings the period for payment fixed in a contract shall not exceed 60 days, unless otherwise expressly agreed in the contract and provided it is not unfair to the creditor. These exceptions will cover cases that require more extensive payment periods.

A derogation included in the directive will also allow certain public undertakings, as well as public hospitals and healthcare institutions, to extend the payment period up to 60 days.

Compensation for recovery costs

When interest for late payment becomes payable, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of EUR 40, that will be payable without the necessity of a reminder as compensation for the creditor's own recovery costs.

In addition, the creditor will be entitled to obtain compensation for expenses incurred due to the debtor's late payment, such as those incurred in instructing a lawyer or employing a debt collection agency.

EU member states will be allowed to impose fixed sums for compensation of recovery costs which are higher and therefore more favourable to the creditor, or to increase these amounts, for instance to keep pace with inflation.

The Commission will publish on the Internet statutory rates of interest (the reference rate of the relevant Central Bank plus 8%) which apply for the purpose of late payment in commercial transactions.

Also, contracts excluding interest for late payment shall be considered as grossly unfair.

Member states will have two years to adapt national laws to comply with the provisions of the new directive, which replaces directive 2000/35/EC.

The reduction in the number of late payments in commercial transactions is one of the ten principles enshrined in the Small Business Act for Europe (16788/08), to help SMEs to cope with the present tough market conditions.

 
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