Fabian Demicoli

Seminar on Late Payments Directive


What rights
does it give to business? GRTU's EU Desk has attended a Seminar
organized by the Malta Association of Credit Management with the full support
of the Commission Representation in Malta Headed by Martin Bugelli. The Seminar
aimed at providing interested stakeholders with a clear overview on the Late
Payments Directive and how they can apply them to take advantage of the full
rights made available under this Directive. The Seminar was part of an EU wide
initiative aimed at raising awareness on this important Directive.

A study found that Northern Countries
have a large tendency to pay on time, contrary to countries in the South and
Northern Countries are reluctant to do business with the South for this very
reason.

The Directive was transposed into
Maltese Law by LN 272 published on 14 August 2012. The average duration for
Government to settle payments in commercial transactions in Malta is 89 days
based on a total creditors of €90.2M, while the EU average stood at 65 days.

Background

To combat the problem of late payments
the EU had launched the Late Payments Directive that covers all payments made
as remuneration for commercial transactions (between businesses (B2B), Public
Authorities (PA) and undertakings). It is designed to combat the late payment
for goods or services within the European Union. Late payments represent a
significant cost to creditors, especially SMEs which are more financially
vulnerable. It generates problems with cash flow, administrative cost and
possibly lead to bankruptcy. It also constitutes an obstacle to the Single
Market as it stops businesses from trading outside their shores. One has to
keep in mind that debtor companies and public authorities paying late get free
trade credit.

The original Late Payments Directive
proved to be unsuccessful to achieve its objectives because despite the
Directive late payment in commercial transactions remained a widespread
practice. Following this result the Commission had launched a consultation to
address the problems in the effectiveness of the Directive which were present
in all Member States. On the results of the consultation the issues were
addressed with new or enhanced proposals, which constitute the Recast of the
Late Payments Directive. The scope of the Recast Directive remains the same,
covering debts in commercial transactions.

The current
provisions of the late payments directive in force

The Directive makes strict imposition
when dues are from the side of a Public Authority but when it comes to business
to business the Directives only gives the opportunity for creditors to apply
the rights given to them by the Directive, leaving it therefore optional and in
the hands of creditors.

Main
Provisions

EU countries shall ensure that if the
date or period for payment is not fixed in the contract, the creditor is
entitled to interest for late payment upon the expiry of any of the following
time-limits:

  • 30 calendar days
    following the date of receipt by the debtor of the invoice or an equivalent
    request for payment ;
  • if the date of the
    receipt of the invoice or the equivalent request for payment is uncertain, 30
    calendar days after the date of receipt of the goods or services.

In addition, countries shall ensure that:

  • the maximum duration
    of the 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 provided it is not grossly unfair to the creditor;
  • the period for
    payment fixed in the contract does not exceed 60 calendar days, unless
    otherwise expressly agreed in the contract and provided it is not grossly
    unfair to the creditor.

Interest on
late payment

Businesses that decide to apply the
Directive have the right to charge interest. This rate is part based on the ECB
rate of 0.75% and the statutory interest rate of 8% (The rate which Malta as a
Member State agreed to apply). The minimum interest that can be applied
according to the Directive is therefore 8.75% per annum, which calculates to a
0.023% daily rate.

Compensation

When interest for late payment does
become payable in commercial transactions, the creditor is entitled to obtain a
minimum fixed amount of EUR 40 (for legal costs, money collectors, etc…). This
fixed sum is payable without the necessity of a reminder and as compensation
for the creditor's own recovery costs. In addition the creditor will be
entitled to obtain 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.

Public
Authorities

In commercial transactions where the
debtor is a public authority and a certain time period has expired, the creditor
is entitled to charge interest, without the necessity of a reminder, where the
following conditions are satisfied:    

the period for
payment does not exceed any of the following time-limits: i) 30 calendar days
following the date of receipt by the debtor of the invoice or an equivalent
request for payment; ii) if the date of receipt of the invoice or the
equivalent request for payment is uncertain, 30 calendar days after the date of
the receipt of the goods or services;

the date of receipt
of the invoice is not subject to a contractual agreement between debtor and
creditor.

Countries may extend
the time-limits up to a maximum of 60 calendar days for:

any public authority
which carries out economic activities of an industrial or commercial nature by
offering goods or services on the market and which is subject as a public
undertaking to the transparency requirements laid down in Commission Directive
2006/111/EC;

public entities providing healthcare which are duly
recognised for that purpose.

Unfair
Contract Terms

The Directive should prohibit abuse of
freedom of contract to the disadvantage of the creditor. Where a term in a
contract or a practice relating to the date or period for payment, the rate of
interest for late payment or the compensation for recovery costs is not
justified on the grounds of the terms granted to the debtor, or it mainly
serves the purpose of procuring the debtor additional liquidity at the expense
of the creditor, it may be regarded as constituting such an abuse. For that
purpose, any contract term or practice grossly deviating from good commercial
practice, contrary to good faith and fair dealing, should be regarded as unfair
to the creditor.

For example the follow contract terms
are likely to be considered 'grossly unfair':

exclusion of the
right to charge interest

the exclusion of the
right to compensation for recovery costs

Transparency

Member States shall ensure transparency
about the rights and obligations stemming from this Directive, for example by
making publicly available the applicable rate of statutory interest for late
payment.

Payment
Schedules & Claims

Where installments are not paid by the
agreed date, interest and compensation provided for in this Directive shall be
calculated solely on the basis of overdue amounts.

To ensure parties can enforce full
payment each country's shall also certify that an enforceable title can be
obtained, including through an expedited procedure and irrespective of the
amount of the debt. They shall carry out this duty in accordance with their
respective national laws, regulations and administrative provisions.

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