Late Payment Fee Directive – A framework for protection against consequences of late payments

The Minister for the Economy, Investment and Small Businesses, Hon Chris Cardona, addressed an information session regarding the transposition of the Late Payment Fee Directive (2011/7/EU), hosted by GRTU.

The directive seeks to create a framework to address the growing concern of business-to-business payments and payments by the government or public authorities to businesses, where such payments are effected beyond the agreed due date or remain overdue. This, as we are all aware, causes burdens on business undertakings, particularly small business, causing stress on cash-flow and at times resulting in bankruptcy.

The Directive helps ensure the proper functioning of the internal market by limiting and harmonising payment terms, permitting suppliers to claim compensation, and allow interest in the event of late payment. This directive does not apply for transactions between consumers, interest in connection with other payments such as the laws on cheques and bills of exchange, and payments made as compensation for damages including payment from an insurance company.

Public authorities have to pay for the goods and services that they procure within 30 calendar days following the receipt of invoice. Enterprises are automatically entitled to claim interest for late payment and able to obtain a minimum fixed amount of €40 as compensation for recovery costs, with the possibility of claiming all remaining reasonable recovery costs. The rate of interest for late payment between undertakings is agreed between the undertakings. If there is no such agreement, or in cases where the transaction is between a business and a public authority, the applicable interest rate is at least at 8% plus the ECB reference rate.

A payment period should be fixed in the contract in the case of business-to-business transactions. This period should not exceed 60 days unless this is expressly agreed in the contract and it is not grossly unfair to the creditor. Interests are due the day following the end of the fixed period.

The new measures of the directive are obligatory for public authorities yet optional for enterprises. Indeed one of the main concerns voiced by business representatives was that the nature of the market itself may be challenging to affect the benefits of the directive in cases of business-to-business transactions, since this may result in debtors to opt for other suppliers. Indeed this is a concern that as the Directive stands, will have to be addressed by the market itself. However it does provide a basis to act as a framework to such agreements even though it will not be the solution to all problems.