New German legislation on late payment has come into force. This means, among other things, that many undertakings should change their general terms of business. Otherwise their periods for payment may be void.

In order to counter a general issue of bad terms of payment and late payment both on the part of public authorities and many undertakings, the European Parliament and the Council of the European Union adopted an EU Directive on combating late payment in commercial transactions as early as in 2011. In Germany, new rules on late payment have been introduced to implement the EU directive. The rules came into force on 29 July 2014.

Shorter deadlines

The German rules to combat late payment are even stricter than the rules of the EU directive.

Important provisions of the German rules: 

  • Shorter periods for payment. The period for payment of a purchase price or payment of work performed may not exceed 60 days. If the contracting entity is a public authority, the period may not even exceed 30 days.
  • New deadlines for handing-over procedures and inspection of goods on arrival. Now, the deadlines may not exceed 30 days.

The new rules on the deadlines laid down by undertakings in their general terms of business and standard agreements are even stricter: 

  • Periods for payment exceeding 30 days are void.
  • Deadlines for handing-over procedures and inspection of goods on arrival exceeding 15 days are void.

Increased interest

In addition, interest on overdue payment is increased from 8% to 9% above the base rate.

Exceptions to the rules

There are some exceptions to the above rules. The parties may, for example, expressly agree on longer periods for payment, provided that the creditor will not to a considerable extent be placed in a less favourable position by way of the agreement. As a general rule, the exceptions, however, are few and rare.

Need for change in the undertakings

The undertakings should review their general terms of business (Allgemeine Geschäftsbedingungen) and standard agreements to ensure legal compliance. If they do not, they risk having invalid provisions on, for example, periods for payment.