Summary: Although not generally well-known to most U.S. contracting professionals servicing the retail sector, European Directive 2011/7/EU on combating late payment in commercial transactions required member states to enact provisions in their national legislation by March 16, 2013 which set maximum commercial payment terms.
The provisions of the Directive apply to commercial transactions between an EU and non-EU buyer/sellers depending upon which law applies to the transaction in case of dispute – national law transposing the Directive or the legislation of the other country. All 28 Member States have notified the European Commission of their national transposition measures and the directive also applies to undertakings organized in the European Free trade Association States of Iceland, Liechtenstein, Norway and Switzerland.
The Directive requires businesses to generally pay their invoices within 60 days, unless:
- a longer payment term is expressly agreed in the contract, and
- provided that the payment term is not grossly unfair to the creditor.
Aggrieved business creditors are automatically entitled to interest for late payment and the right to claim €40 per invoice, plus any other costs that you have reasonably incurred to receive the payment that is already late, including administrative costs, debt collection costs, legal costs etc.
In general, a national judge will determine whether a contractual term or practice is "grossly unfair" considering all circumstances of the case in question, including:
- Any gross deviation from good commercial practice, contrary to good faith and fair dealing,
- The nature of the product/service, and
- Whether the debtor has any objective reason to deviate from
- the statutory rate of interest for late payment (reference rate of the European or Member State central bank plus 8 percentage points), and/or
- the 60 day statutory payment period.
For example, any contractual term that excludes interest for late payment will likely be considered to be grossly unfair to the creditor and will either be unenforceable or will give rise to a claim for damages. A contractual term that excludes compensation for recovery costs will also likely be presumed to be unfair.
A few countries have gone further than the requirements of the Directive by establishing payment terms for business to business transactions in their national laws. For example:
- Germany: 30 days maximum. (The law implies that a higher payment term, whilst possible to negotiate, is likely to be considered unreasonable in case of a dispute.)
- Austria: 60 days maximum. (The law implies that a higher payment term, whilst possible to negotiate, is likely to be considered unreasonable in case of a dispute.)
- Spain: 60 days maximum
- France: 60 days or 45 days end of month maximum.