EU directive means it doesn’t always pay to pay late
Shirley Moore, partner and head of debt recovery and insolvency
with law firm Brachers, spells out the implications of the EU Late
The directive came into force on March 15, 2011 and countries
have until March 16, 2013 to implement its provisions.
Businesses will automatically be entitled to claim interest and
recovery costs on late payments, with no requirement for prior
notice reminding the debtor of its obligation to pay.
The Directive applies to commercial transactions, including
Generally, public authorities will have to pay suppliers within
30 days of invoice. For businesses, if no contractual period is
stipulated, invoices must be paid within 30 days. The maximum
contractual payment period for payment will be 60 days unless other
terms are expressly agreed that are not “grossly unfair” to the
creditor. Contractual terms that do not comply with the directive
will be unenforceable and could result in a claim for damages. If
there is an acceptance or verification procedure which is required
before payment becomes due, it should not exceed 30 days, again
unless other terms are expressly agreed and are not grossly
Shirley Moore, partner
and head of debt recovery and insolvency Brachers
This will be the Bank of England reference rate plus 8%, i.e. in
line with the rate currently due under the Late Payment of
Commercial Debts (Interest) Act 1998.
5. Has anything really changed?
As soon as interest becomes payable, the creditor can also claim
a minimum of €40 for their own (internal) recovery costs.
Importantly however, creditors will also be able to recover any
actual, external recovery costs incurred e.g. costs paid to a
solicitor or DCA to collect the debt.
6. So what?
As with previous provisions aimed at improving payment
discipline in this way, one has to question their real life use to
those most impacted e.g. SMEs in difficult economic times. Without
more, they will understandably be reluctant to do anything they
feel might risk their key customer relationships even if those
customers do routinely pay late.