New rules regarding late payment in commercial transactions will enter into force in Portugal this summer, on the first of July, through the Law Decree 62/2013, of 10th May 2013 that implemented the Directive 2011/7/EU.

It has passed exactly 10 years since the Law Decree 32/2003, of 17th February approved the first measures for combating late payment in commercial transactions, then transposing the Directive 2000/35/EC, now revoked by Directive 2011/7/EU.

Indeed, substantive changes had to be made on combating late payment in commercial transactions, bearing in mind that:

  • Most payments in commercial transactions are made later than agreed;
  • Although the goods are delivered and the services are performed many corresponding invoices are paid much later than the deadline;
  • Late payment damagingly affects liquidity of undertakings;
  • Lack of liquidity affects business’ competitiveness and profitability;
  • Creditors need to obtain external financing because of late payment;
  • Most frequently late payment is not due to liquidity difficulties of the debtor but rather to an abuse of its dominant position in the market.

Business-to-Business (B2B)

Contractual payment periods will be limited, as a general rule, to 60 calendar days. However, parties may expressly agree on longer payment periods, provided that such extension is not grossly unfair to the creditor.

Whenever a procedure of acceptance or verification to check the conformity of the goods or services should take place, such procedure should not exceed 30 days counting from the date of the delivery of goods or provision of services. Again, parties may expressly agree on a longer period of time provided that such extension is not grossly unfair to the creditor.

Business-to-Government (B2G)

When it comes to public entities being the debtor, payment periods should not exceed 30 calendar days, unless otherwise expressly agreed in the contract and provided it is objectively justified considering the particular nature or features of the contract (such as public entities providing healthcare), and in any event should not exceed 60 calendar days.

In fact, public authorities, generally, benefit from more secure and predictable income sources or can obtain financing at more attractive conditions rather than undertakings. For that reason it would not be fair or reasonable to make undertaking depend on long and late payment from public authorities.

On the other hand, public entities are not allowed to set interest lower than the statutory rate applicable for commercial interest, which corresponds at least to the one applied by the European Central Bank, on a semi-annual basis, plus eight percentage points.

As well, creditor is entitled to charge interest for late payment without giving any notice.

The date of receipt of the invoice should not be subject to further agreement between the debtor and the creditor.

The above referred within the B2B transactions as far as the procedure of acceptance or verification to check the conformity of the goods or services is concerned also applies under the same terms and conditions within a B2G transaction.

Compensation for recovery costs

The creditor (on a B2B or a B2G transaction) is also entitled to obtain from the debtor a fixed sum of at least EUR 40 without the need of a reminder as compensation for the creditor´s own recovery costs. The creditor may claim a compensation exceeding that fixed sum in case he evidenced incurring in higher and reasonable recovery costs, such as lawyers and enforcement agent fees and expenses.

Clauses null and void

This new regime adds to the list of the clauses null and void those that exclude delayed payments interest and/or the compensation for recovery costs.

One of the most significant changes lies on the prohibition of the abuse of freedom of contract to the disadvantage of the creditor and the definition of “grossly unfair”.

Any contractual term or practice which is contrary to good faith and fair dealing is regarded as unfair to the creditor thus null and void.

Application in time

This new regime will enter into force on the 1st of July of 2013 and it won’t affect commercial transactions in course but solely the contracts signed from next July, excluding public procurement resulting from tender procedures that were started before that date.  

Additionally, it will only be effective to the public entities forming part of the National Health Service on the 1st of January of 2016, unless the debtor is a microenterprise or a small enterprise duly recognized by the Portuguese Agency for Competitiveness and Innovation (IAPMEI).

Final considerations

The legislator is usually ahead when it comes to introduce changes in society in particular in commercial transactions. One can foresee as possible some resilience at the beginning and therefore the judicial means of reaction must be efficient in order to fulfil expectations.

Though there is still a long path these provisions represent a substantive change as compared with Directive 200/35/EC when it comes to shift to a culture of prompt payment.