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Late Payment European Directive 2011

Business Team

EU Directive on Business Late Invoices 

The Late Payment Directive, 2011/7/EU[1] is a Directive of the European Union concerning commercial late payments. It replaced the previous Late Payment Directive 2000/35/EC.[2] Like all European Union directives, this is an instrument which requires member states to enact its provisions in national legislation by 16 March 2013.[3] The directive applies to all member states.

The Directive aims to harmonise general invoicing terms however it is left to each EU member state to enact and enforce their own legislation at a National level. Companies therefore engaging in European Trade between EU and Non-EU member states often contract in which choice law / legislation they will abide by. However, where choice has not been mutually decided it is usually determined by location i.e. where the principle place of business is done. For instance, if you are producing and selling goods in the UK to company's in Germany and the economic consequence of delayed invoice payments are felt in the UK then you can pursue late invoice payment fees via UK legislation.

As EU member states became more interdependent through trade and policy, the EU Late Payments Directive was brought in line with existing UKE legislation to the level the playing field across the EU and wider areas.

The directive aims to encourage a shift in culture for businesses to pay their invoices in a prompt manner. Although each respective EU country has a requirement interpret the directive into their own legislation covering late payments, they tend to follow a general consensus i.e. debtors will be forced to pay interest and reimburse the reasonable recovery costs of the creditor, if they do not pay for goods and services on time (60 days for business and 30 days for public authorities).

In 2016, the European Commission reported concerns that in commercial relations, businesses, especially small and medium-sized enterprises (SMEs), are reluctant to:

(a) Dispute the terms of a contract (ex. payment term, rate of interest for late payment et.)

(b) Chase the payment of their unpaid invoices

(c) Claim interest for late payment and compensation for recovery costs

(d) Refer the buyer to court for non-respect of the agreed contractual terms.

The directive sets out the rights and tools available for businesses to combat the above issues. The respective legislation will vary per country as it is up to the individual member state to implement their own interpretation of the directive, however the underlying purpose remains the same. Late commercial payments are an ongoing issue for businesses in the EU and the directive provides useful tools for small businesses to claim compensation for any overdue invoices. Really, the main focus is encouraging a prompt payment culture across the European Union.

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