The late Payment Directive two years on: delayed effectiveness?

Categories: Contract Law
Typology: Legislation

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (available at ) replaces Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions.

In transactions between undertakings (Art. 3 Directive), where the date or period for payment is not fixed in the contract, the default period is 30 calendar days and the creditor is entitled to interest for late payment upon the expiry of this period. Where the period for payment is fixed in the contract it does not exceed 60 calendar days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor. The new directive clarifies that where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for, the maximum duration of that procedure 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.

In transactions between undertakings and public authorities (Art. 4 Directive), where the debtor is a public authority, the period for payment does not exceed 30 calendar days. The contract may extend this period to a maximum of 60 calendar days. It may also be extended to 60 calendar days in some sectors, for example for public entities providing healthcare. The directive adds that the maximum duration of a 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 any tender documents and provided it is not grossly unfair to the creditor.

If payment is late, the creditor is entitled to a late payment interest, which can be quite high. For example, in transactions between undertakings and public authorities, the interest rate will be equal to the sum of the reference rate (set by the European Central Bank for a Eurozone country and the national Central Bank in other cases) and at least eight percentage points (Art. 2 Directive). The creditor is also entitled to a fixed sum of 40 euros and a 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.

The Directive should have been implemented by 16th March 2013. The good news is: all countries have now legally implemented the Directive. Some did it in time, even if they may have waited the very last minute, as exemplified by the UK and its Late Payment Commercial Debts Regulation 2013 which came into force on 16th March 2013. Others did it soon afterwards, such as Luxembourg (Loi du 29 mars 2013 concernant la lutte contre le retard de paiement dans les transactions commerciales– portant transposition de la directive 2011/7/UE du Parlement européen et du Conseil du 16 février 2011 concernant la lutte contre le retard de paiement dans les transactions commerciales, et– portant modification de la loi modifiée du 18 avril 2004 relative aux délais de paiement et aux intérêts de retard). The main European economy –Germany— only implemented the Directive in July 2014 (Gesetz zur Bekämpfung von Zahlungsverzug im Geschäftsverkehr und zur Änderung des Erneuerbare-Energien-Gesetzes). A list of national measures communicated by the Member States may be found here.

Of course, the fact that there is a reference to national execution measures does not necessarily mean that these measures are either comprehensive or in conformity. This is the second issue. The solution probably lies with the doctrines of direct effect and indirect effect. Several provisions of Directive 2011/7 seem to meet the criteria of direct effect (clear, precise and unconditional).

However, according to a study on the implementation and effectiveness of the late payment directive released in September 2013 by the Association of European Chambers of Commerce and Industry (known as Eurochambres), “nearly all of Europe’s public authorities still fail to pay their bills within 30 days and in some cases it takes over 100 days!” (http://www.30max.eu/map-of-debtors/). The study added that only in Finland and Estonia are public authorities paying their bills within 30 days, and that in 6 countries, payment time exceeds 60 days: Belgium (69 days), Cyprus (85), Portugal (133), Spain (155), Greece (159) and Italy (170). The current situation has not improved very much. According to Intrum Justitia’s European Payment Index 2014, “the total bad debt loss in Europe has risen [to] 360 billion euros” (p. 4). The average payment duration between businesses is now 47 days and for the public sector 58 days (p. 8). The trend is positive. However, the gap remains huge between the northern European states and the southern ones (see p. 15). For example, in Germany, the average payment delay (not duration) for public authorities amounts to 10 days (p. 33) and in Finland 4 days only (p. 31). In contrast, in Spain, it is 79 days (p. 50) and in Greece it reaches 105 days (p. 34). In reality the divide is often greater as the average payment term differs considerably, from 20 days in Finland to 75 days in Spain, which means the creditor gets paid in 24 days in Finland but 154 days in Spain. The voluntary enforcement of the existing implementing legislation by the debtor is therefore far from complete. The problem is compounded by the reluctance of small and medium companies to enforce their rights as creditors, for example by charging interest on late payments. New solutions must therefore be found by national governments to reach the objectives of the Directive.

(Altalex, 20 July 2015. Article by Emmanuel Guinchard)

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