The worsening of the economic crisis has determined in many European countries an increase of late payments in commercial transactions. Cyprus makes no exception to this trend.
Specific directives have been adopted at European level in order to combat late payments. First, Directive 2000/35/EU was enacted. The latter was replaced by Directive 2011/07/EU.
Directive 2011/07/EU was adopted on 16 February 2011 and had to be integrated into national law by member states by 16 March 2013 at the latest.
Cyprus was one of the first European Union countries that enacted legislation implementing the second directive aimed at combating late payments in commercial transactions.
The Late Payments in Commercial Transactions Law, Law 123(I) of 2012 (the “Late Payments Law”), repealed and modernized the 2003 law on late payments in commercial transactions and harmonized Cyprus law with European Directive 2011/07/EU.
The Late Payments Law covers all debts incurred in commercial transactions, irrespective of whether they are carried out between private or public undertakings or between undertakings and public authorities, setting specific time-limits for payment for goods and services and providing for interest and penalties in the event of delay.
According to the legislation currently in force the creditor is entitled to interest for late payment upon the expiry of any of the following time-limits:
- 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment;
- where the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of receipt of the goods or services;
- where the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 30 calendar days after the date of the receipt of the goods or services;
- where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for, the maximum duration of that procedure of acceptance or verification shall not exceed 30 calendar days from the date of receipt of the goods or services, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor.
Public entities providing healthcare services which are duly recognized for that purpose are exempted from the above time-limits and they can opt for a deadline up to 60 days.
In addition to the above, the payment term can be contractually extended for up to 60 calendar days. Between private businesses if the parties agree to extend the due date for payment beyond 60 days, this will only be valid if the extension is not “grossly unfair” to the creditor. Between private businesses and public authorities any extension of the term for payments must be expressly agreed and objectively justified in the light of the particular nature or features of the contract, and in any event cannot exceed 60 calendar days; there is no right to agree a further extension.
After the expiration of the payment period, the creditor is entitled, without the necessity of a reminder, to impose the late payment interest rate which is fixed at a minimum of at least 8 percentage points above the European Central Bank’s reference rate. The creditor is also entitled to a fixed amount of €40 as a compensation for recovery costs. Additionally, the creditor will be entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment (e.g. lawyer, debt collection agency).
Any contractual term or practice grossly deviating from good commercial practice, contrary to good faith and fair dealing will either be unenforceable or will give rise to a claim for damages. For example, a contractual term that excludes interest for late payment or compensation for recovery costs will be automatically considered to be grossly unfair to the creditor. Unions and organizations officially recognized as representing undertakings may take action before the courts or before competent administrative bodies on behalf of their members on the grounds that contractual terms or practices are grossly unfair.
Courts and other competent authorities are required to issue their decisions on matters arising under the Late Payments Law within 90 calendar days of the lodging of the creditor’s action, provided that the debt or aspects of the procedure are not disputed.