Late payment of debt is significantly impacting many businesses which are already facing serious financial pressures.
To address this, the government has introduced Regulations* which take effect from 16 March next, which are designed to assist businesses combat the problem of late payments by purchasers.
What is the Regulations about?
A supplier is entitled to interest and administration costs if payment is not made on time. Interest is payable either where payment is not made within the timeframe agreed between the parties for payment; or, where the contract is silent on the timing for payment, within 30 calendar days from the date of the invoice.
What is the rate of interest on a late payment?
The rate of interest is 8% above the ECB base re-financing rate – currently 0.75%. The ECB rate on 1 January determines the rate of interest chargeable (plus 8%) for the 6 months to 30 June. The ECB rate at 1 July determines the rate for the next 6 months.
What do the Regulations Provide?
If the parties expressly agree in the contract, the payment deadline may be in excess of 60 days. However, this extended period is effective only where it is not grossly unfair to the supplier.
The late payment of an instalment will attract interest. However this extends to the instalment only, and not to the total contract price.
A clause in a contract which excludes interest for late payment may be unenforceable or give rise to a claim in damages.
The Regulations apply only if the supplier has fulfilled his or her contractual and legal obligations and so cannot be used to compel payment if, for example, there has been an incomplete performance or breach of contract by the supplier.
Who do these Regulations apply to?
The Regulations apply to commercial (business to business) transactions in the private sector, or between the public sector and the private sector, entered into after 16 March 2013.
What transactions do the Regulations not apply to?
A contract between a business and a private consumer is not covered by the Regulations. Similarly, a debt which is the subject of an insolvency or statutory scheme is not included.
How do I enforce the Regulations?
It is an implied term of every contract entered into after 16 March 2013 that the supplier is entitled to interest under these Regulations without having to flag it to the purchaser. Interest will arise on the expiry of the terms of payment as per the contract, or where the contract is silent, after 30 calendar days.
Can I recover administration costs as a result of the late payment?
In addition to the interest, a supplier may charge a fee to cover administration costs relating to a late payment as follows:
|Value of Debt||Admin Fee|
|€0 - €1,000:||€40.00|
|€1,000 - €10,000||€70.00|
|€10,000 and above||€100.00|
The supplier is not required to prove expenditure incurred in relation to these administration costs. In addition, the supplier may seek to recover reasonable compensation from the purchaser for recovery costs e.g. lawyers’ fees.
You would like some support?
If you have any queries arising from this article, or if you would like advice on the Regulations, or for us to review your terms and conditions of trade, please contact Breda O’Malley Partner at firstname.lastname@example.org or Jeremy Erwin Solicitor, Commercial Department, Hayes solicitors at email@example.com
*European Communities (Late Payment in Commercial Transactions) Regulations 2012 – SI580/2012Back to Full News
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About the Author
Jeremy is a partner in the Commercial & Business team at Hayes solicitors. He practises predominately in insolvency, commercial litigation and dispute resolution, acting for a variety of companies and financial institutions in contract law cases and enforcement and recovery actions in the High Court. He also advises clients in high value complex Commercial Court proceedings.