Legal Updates - Late Payments

Commercial Law – Late Payments – EU Directive – Late Payment of Commercial Debts (Interest) 1998

On 16 March 2013, the EU Directive 2011/7/EU on late payment in commercial transactions (the “Directive”) will come into force.

The Directive applies to all payments made as remuneration for commercial transactions between: (i) private organisations; and (ii) private organisations and public authorities. For the purposes of this update, we have only considered transactions between private organisations.

The Directive

There are three main areas that private organisations should be aware of, which are:

The right to interest

A creditor is entitled to interest on late payments without the necessity of reminders.
The amount of interest is equal to the percentage agreed between the parties or the statutory interest rate (rate equal to the rate set by the Bank of England plus 8%).
Transactions between private organisations:

Where there is a fixed payment date or period, the creditor is entitled to interests from the day after expiry of the date or period.

Where there is no fixed payment date or period, there are different rules depending on the circumstances. For example, the creditor is entitled to interests upon expiry of 30 days from the date of receipt of invoice or payment request.

The period for payment fixed in the contract should not exceed 60 days, unless it is expressly agreed in the contract and it is not grossly unfair to the creditor.

Compensation

The creditor is entitled to obtain a minimum fixed sum of 40 Euros as compensation for recovery costs.

Unfair contractual terms and practices

A contractual term or a practice relating to: (i) the date or period for payment; (ii) the rate of interest for late payment; or (iii) the compensation for recovery costs is either unenforceable or gives rise to a claim for damages if it is grossly unfair to the creditor.
The Directive stipulates that in determining whether a contractual term or practice is grossly unfair, regard must be had to all the circumstances.

How will the Directive be implemented in the UK?

Following a consultation by the UK Department for Business, Innovation & Skills, the following points about the implementation of the Directive were noted:

The Directive will be transposed into English law via the Late Payment of Commercial Debts (Interest) 1998. This legislation will be amended rather than a new piece of legislation being introduced.
The amended legislation will take effect from 16 March 2013.
The legislation will retain the three-tier system for determining the amount of compensation for recovery costs. i.e. £40 for debts under £1,000; £70 for debts between £1,000 and £10,000; and £100 for debts over £10,000.

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© RT COOPERS, 2013. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances