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Combating late payment in commercial transactions

Most commercial transactions in the European Union (EU) are paid within varying time periods which can be quite extensive. Suppliers or service providers give their clients time to pay an invoice. However, invoices are often not paid until well after the deadline. This negatively affects the liquidity and financial management of undertakings. In order to limit such disadvantages, this Directive lays down a framework for payment periods in commercial transactions.

ACT

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (Text with EEA relevance).

SUMMARY

This Directive aims at combating late payment * in commercial transactions * in order to contribute to the proper functioning of the internal market and to foster the competitiveness of undertakings, particularly small and medium-sized enterprises (SMEs).

The Directive applies to all types of payment made as remuneration for commercial transactions between public authorities and between undertakings. It may exclude:

  • debts that are subject to insolvency proceedings against a debtor;
  • proceedings aimed at debt restructuring;
  • transactions with consumers;
  • interest relating to other payments (for examples payments made under the laws on cheques and bills of exchange, or payments made as compensation for damages including payments from insurance companies).

Transactions between undertakings

In the event of late payment, a creditor is entitled to claim interest on condition that they have fulfilled their contractual and legal obligations and that they have not received the amount due * on the agreed date. The creditor is paid such interest according to the payment period or date laid down in the contract.

With regard to commercial transactions between economic operators, the Directive stipulates, whilst respecting their contractual freedom, that they must pay their invoices within 60 days except where they have expressly agreed otherwise and insofar as other terms are not grossly unfair to the creditor.

Where the contract does not specify any date for payment, the creditor is also entitled to receive interest if 30 calendar days after receipt, by the debtor, of the invoice or an equivalent request for payment, the creditor has not received the amount due.

The creditor may even be entitled to compensation from the debtor for recovery costs.

Transactions between undertakings and public authorities

In the event of late payment, and where the debtor is a public authority, the creditor shall be entitled to claim interest if they have fulfilled their contractual and legal obligations and have not received the amount due on the agreed date.

Where the debtor is a public authority, the date of receipt of the invoice must not be the subject of a contractual agreement. The period of payment for an invoice must not exceed:

  • 30 days following receipt of the invoice;
  • 30 days following the date of receipt of the goods or services where the date of receipt of the invoice is uncertain.

Member States may extend payment periods to a maximum of 60 days under certain conditions.

The statutory rate of interest for late payment shall be increased to at least 8 percentage points above the reference rate applied by the European Central Bank. Public authorities may not set lower interest rates for late payment.

Unfair contractual terms and practice

Contractual terms shall not apply if they cause prejudice or are unfair to the creditor – for example if they exclude the payment of interest for late payment or compensation for recovery costs.

In order to avoid such unfair practice, Member States must ensure transparency with regard to the rights and obligations resulting from this Directive and shall be bound to publish the applicable rate of statutory interest for late payment.

Member States may also encourage the implementation of payment codes setting out payment time limits.

Recovery procedures

Creditors may lodge action or apply to a court provided that the debt is not disputed.

This Directive repeals Directive 2000/35/EC.

Key terms of the Act
  • Late payment: payment not made within the contractual or statutory period of payment.
  • Commercial transactions: transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration.
  • Amount due: the principal sum which should have been paid within the contractual or statutory period of payment, including the applicable taxes, duties, levies or charges specified in the invoice or the equivalent request for payment.

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal

Directive 2011/7/EU

15.3.2011

16.3.2013

OJ L 48, 23.2.2011

Last updated: 27.06.2011

See also

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