The directive establishes specific deadlines for the payment of invoices and the right to compensation in cases of late payment in all commercial transactions. This new rules aim at increasing the protection of creditors and contribute to the better functioning of Internal Market, especially for SMEs. Member states will now have two years to comply with its provisions.

With the occasion of the meeting of Agriculture and Fisheries ministers held on 24 January, Council adopted without discussion the text of the so-called 'Late Payments Directive' as agreed by Parliament in October 2010. This new Directive, which lays down new rules on deadlines and compensations for late payment in all commercial transactions, aims to reduce the number of late payments in commercial transactions which is one of the ten principles included in the Small Business Act for Europe to help SMEs to cope with the present tough market conditions.

The text establishes that, if the date or period for payment is not fixed in the contract, the creditor will be entitled to interest for late payment after 30 days following the date of receipt of the invoice. If the date of the receipt of the invoice is uncertain, 30 days after the date of receipt of the goods or services.

As a general rule, in transactions between companies the period for payment fixed in a contract will not exceed 60 days, unless otherwise expressly agreed in the contract and provided it is not unfair to the creditor. These exceptions will cover cases that require more extensive payment periods. A derogation included in the directive will also allow certain public undertakings, as well as public hospitals and healthcare institutions, to extend the payment period up to 60 days.

Compensation and recovery costs

When interest for late payment becomes payable, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of 40 euro, that will be payable without the necessity of a reminder as compensation for the creditor's own recovery costs. In addition, the creditor will be entitled to obtain compensation for expenses incurred due to the debtor's late payment, such as those incurred in instructing a lawyer or employing a debt collection agency. 

The Commission will publish on the Internet statutory rates of interest, which will be the reference rate of the relevant Central Bank plus 8%, applying for the purpose of late payment in commercial transactions.

Member states will have now two years to adapt national laws to comply with the provisions of the new directive, which replaces Directive 2000/35/EC on late payments.