Changes in the European Late Payment Directive

The Late Payment of Commercial Debts Regulations 2013 will come into force on 16 March 2013.  This will implement the Directive 2011/7/EU on combating late payment in commercial transactions.

The difference this will make to the current legislation is that the Directive covers both business to business transactions and business to public authority transactions.  A creditor who is owed outstanding monies for invoices may opt not to charge interest to their business customers however, for the public sector, as from 16 March 2013, it will be mandatory.  The public sector must pay for goods and services rendered, as agreed, and if they fail to do so, they must pay charges and late payment interest .  

The recommended payment terms within the Act are 30 days however contracting up to 60 day terms, in exceptional circumstances, is permissible. 

Invoices not paid after 60 days will be deemed as being “grossly unfair." This also applies to business to business transactions.

Under the old Directive, interest could be claimed at 8% above the Bank of England in the UK and 7% above the European Central Bank for European debts.  This new directive permits each government to set their own rate of interest for late payment, however, the minimum rate they are allowed to charge is 8% above the European Central Bank rate.  Unlike the old directive, you cannot now contract out of paying late payment interest and there is also now no minimum debt involved so this directive can be used on any amount that has been invoiced and remains unpaid. 

There are currently compensation costs of £40/£70/£100 in place depending on the size of the debt.  Under the new Directive the minimum sum which must be claimed is 40 Euros regardless of the size of the debt and if the reasonable costs of the creditor in recovering the debt is not met by the fixed sum, the creditor can also claim a sum equivalent to the difference between the fixed cost and those reasonable costs expended. 

Consider relying on the new Directive where you have overdue invoices, noting however, that the new Directive can only be relied upon in respect of contracts concluded after the implementation of the new directive on 16 March 2013.