Late Payment Directive

On 16 February 2011, a new Directive on combating late payment in commercial transactions was adopted by the European Council and the European Parliament.

The Directive provides more protection for the creditors since its objective is to ensure that cross-border transactions do not entail greater risks than domestic ones.

The most important new provisions are as follows:

*  The Directive imposes specific deadlines for the payment of invoices. Member States will ensure that the payment deadline stated in a contract does not exceed 60 days, unless otherwise expressly agreed and provided that it is not grossly unfair to the creditor. If no deadline for payment is determined in the contract, the general rule is 30 days.
*   In contracts with public authorities, the general rule of 30 days applies as well. This may however be extended to 60 days for certain public entities.
*  Interest for late payment is due, without notice, from the day following the payment deadline (foresaid period of 30-60 days). The applicable interest rate will be the reference rate provided by the European Central Bank, with an additional 8%.
*   The creditor is also entitled to obtain compensation from the debtor for all incurred recovery costs. A fixed sum of EUR 40 will be due without the necessity of a reminder. In addition, the creditor will be entitled to a reasonable compensation for all of the recovery costs exceeding the fixed sum of EUR 40. This could include expenses incurred in instructing a lawyer or a debt collection agency.
*   The Member States will have to ensure that any contractual term or a practice in connection with a date or the deadline for payment, interest rate for late payment or compensation for recovery costs which are grossly unfair to the creditor, is either unenforceable or gives rise to damages;

The Directive expressly states that a contract clause or a practice excluding interest for late payment has to be considered as clearly unfair;

The Member States will have to establish the necessary legal and administrative provisions in order to comply with the above provisions before 16 March 2013 at the latest.