Late payment

The EU Late Payment Directive is due to come into force on 16th March.

The Directive covers all debts incurred in commercial transactions. It applies to businesses and public authorities, whether the transactions are within the UK or across EU borders and its purpose is to establish a level playing field across the single market. Currently smaller businesses with little bargaining power usually have to accept the terms imposed by large customers.

The UK was one of the first countries to introduce late payment legislation and the Government is already working alongside industry bodies in the UK to encourage more businesses to sign up to the Prompt Payment Code which encourages good practice. Over 1,100 businesses have already signed up to the Code.

Under the Directive:

– public authorities will continue to have to pay for goods and services within 30 days of receipt of an undisputed invoice – this matches the UK Government’s standard practice.

– commercial businesses will be required to make payments within 60 days unless they have expressly agreed otherwise and it is not “grossly unfair.” The UK, however, has opted to keep the
limit at 30 days.

– businesses will be able to obtain a minimum fixed amount of €40 as a compensation, although the UK has decided to retain the current three tiers of compensation based on the value of the debt.

– creditors will now be able claim for reasonable legal costs.

– interest will be 8% over the European Central Bank reference rate.

Time, and case law, will determine what is and what is not “grossly unfair” although the Directive does suggest that any gross deviation from good commercial practice contrary to good faith and fair dealing and contracts specifically excluding claims for interest and compensation are likely to be caught by the definition.

The Directive comes into force on 16th March 2013. Businesses should review their contracts to check whether they comply with the new Directive and, in particular, consider whether any terms could be considered to be grossly unfair and therefore liable to be disputed.

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