New EU directive combats late payment in commercial transactions

January 26, 2011  |  Electronic Invoicing

Member States should promote systems that give legal certainty as regards the exact date of receipt of invoices by the debtors, especially in the field of electronic invoicing where the receipt of invoices could generate electronic evidence.

The EU is preparing a directive to combat late payments. But why. Well, many payments are made –MUCH- later than agreed in the contract or laid down in the general conditions. Even though the goods are delivered or the services have been performed as agreed. Such late payment (1) affects  liquidity, (2) complicates the financial management of especially SME’s, (3) affects their competitiveness and profitability when the SME needs to obtain external financing because of the late payment. The risk of such negative effects strongly increases in periods of economic downturn when access to financing is more difficult. Like these days.

Therefore a decisive shift to a culture of prompt payment, including one in which the exclusion of the right to charge interest should always be considered to be a grossly unfair contractual term or practice, is necessary to reverse this trend and to discourage late payment. Such a shift should also include the introduction of specific provisions on payment periods and on the compensation of creditors for the costs incurred, and, that the exclusion of the right to compensation for recovery costs should be presumed to be grossly unfair.

The main points of this directive are:

  • Harmonisation of period for payment by public authorities to businesses: Public authorities will have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.
  • Contractual freedom in businesses commercial transactions: Enterprises will have to pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair.
  • Enterprises will automatically be entitled to claim interest for late payment and will also be able to obtain a minimum fixed amount of €40 as a compensation for recovery costs. They can claim compensation for all remaining reasonable recovery costs.
  • The statutory Interest rate for late payment will be increased to at least 8 percentage points above the European Central Bank’s reference. Public authorities are not allowed to fix an interest rate for late payment below the European Central Bank’s reference.

More information:
Most recent document (13/1/2011):
EU communication:

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