The EU Late Payment Regulation: Creditor Protection in Commercial Transactions

Awaiting approval from EU Member States, the new Regulation promises a key shift in how late payments are dealt with throughout the Member States. It is crucial to understand the transition from the current directive on late payments, to a regulation. While a directive sets out a binding goal that EU Member States must achieve, requiring them to transpose it into national law, a regulation is automatically and uniformly applicable across all EU Member States without the need for national transposition, being binding in its entirety.

The Late Payment Regulation shall apply specifically to commercial transactions, specifically those between undertakings or between undertakings and public authorities where the latter is the debtor, involving the delivery of goods/provision of services for remuneration. Consequently, this regulation does not affect transactions involving consumers.

Key points that emerge from the Late Payment Regulation are:

1. Payment Periods:

• In commercial transactions between public authorities and undertakings, the payment period cannot exceed 30 calendar days from the date of receipt of the invoice or request for payment, provided that the debtor has received the goods or services.
• In commercial transactions between undertakings, the parties can extend the payment period to a maximum of 60 calendar days if expressly agreed in the contract. If not, the 30 calendar days shall apply.
• In transactions between undertakings involving the purchase of slow moving or seasonal goods, the payment period may be extended up to 120 calendar days.

2. Interest for Late Payment: Creditors cannot waive their right to receive interest for late payments when the debtor is a public authority or a large undertaking. Furthermore, the interest rate is set at 8% plus the ECB rate of 4.5%, totalling 12.5%.

3. Compensation for Recovery Costs: A flat fee compensation for recovery costs is automatically due by the debtor to the creditor when interest for late payment is applicable, and the creditor is prohibited from waiving its right to receive this compensation when the debtor is a public authority or a large undertaking. The amount of the flat fee varies depending on every commercial transaction’s value, and ranges from €50 up to €150.

4. Prohibition of Certain Contractual Terms: Any contractual terms altering the payment period or excluding or restricting the right of the creditors to obtain interest or compensation for recovery costs shall be null and void and in any case shall be prohibited, thereby ensuring creditor protection.

Apart from the foregoing, the new Regulation also lays down enforcement measures. Member States shall designate enforcement authorities who shall take proportionate measures to ensure that the deadline of payments are complied with, and shall co-operate with other enforcement authorities in other states.

In conclusion, the new Late Payment Regulation marks a significant step towards better protecting creditors within the EU. The change from the current directive to a regulation ensures uniform application across all EU Member States. Such an approach is particularly advantageous for those businesses engaged in cross-border trade within the EU, thereby ensuring consistency in commercial transactions.