Late Payment Interest under Commercial Contracts - Improved Rights for Creditors on the Way

It has been estimated that in the Euro Zone there is currently just under €2 trillion worth of unpaid overdue bills. This eye-watering sum has a profound impact on businesses’ cash flow generally but the late payment of bills can be particularly damaging to SMEs. In the current tough financial climate, it can make the difference between surviving and not surviving.

Late payment legislation was first introduced in the UK in 1998 by the then new Labour government, keen to help and encourage SMEs collect bad debts. The rights of commercial creditors are about to be bolstered by the Directive on combating late payment in commercial transactions (2011/7/EU). Once the Directive is in force:
• Public authorities will be obliged to pay invoices for goods and services within 30 days. Member States will be able to specify a longer period, not exceeding 60 days, applicable in certain specified circumstances.
• Businesses will be obliged to pay invoices within 30 days, although extensions up to 60 days can be mutually agreed. Any extension beyond 60 days will only be valid if it is expressly agreed and only if it is not "grossly unfair".
• Debtors will be obliged pay interest at a rate of 8% over the reference rate and compensation costs (of not less than €40).
• Suppliers will have the right to charge interest from the day after the end of the payment period stipulated in the contract, without having to send a reminder.
• Member States have until 16th March 2013 to implement the Directive in domestic law. However, earlier implementation in the UK seems a real possibility.

Heald Solicitors offer a proactive debt recovery service designed to help business owners manage late payment issues. To find out more, please contact Tom Silverwood-Cope or Simon Daw.

Filed: 07/07/2011 16:53:34