Shirley Moore, partner and head of debt recovery and insolvency with law firm Brachers, spells out the implications of the EU Late Payment Directive.

1. What and when?

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.

2. Who is affected?

The Directive applies to commercial transactions, including public authorities.

3. Time periods

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 unfair.

Shirley Moore, partner and head of debt recovery and insolvency Brachers

4. Rate

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.