Despite the adoption and implementation of Directive 2000/35/EC on combating late payment in commercial transactions, many payments in commercial transactions between economic operators and public authorities are made later than agreed in the contract or the general conditions. Even after the goods have been delivered or the services provided, many invoices remain unpaid well past their due date. Such late payment adversely affects liquidity and complicates the financial management of undertakings. It also undermines their competitiveness and profitability, as creditors need to obtain external financing due to late payment. The risk of such adverse effects increases sharply during an economic downturn when access to financing is more difficult.
The European Parliament and the Council therefore decided that a number of substantive changes to Directive 2000/35/EC were necessary and adopted Directive 2011/7/EU.
Eight months after the transposition deadline, Belgium finally implemented Directive 2011/7/EU by the Act of 22 November 2013 amending the Act of 2 August 2002 combating late payment in commercial transactions.
The new act distinguishes between two types of commercial transactions, i.e. commercial transactions between undertakings and commercial transactions between undertakings and public authorities. Indeed, as a general rule, public authorities benefit from more secure, predictable and continuous revenue streams than private-sector undertakings. In addition, many public authorities can obtain financing at more attractive terms than businesses. Lengthy payment terms and late payment by public authorities can result in unjustified costs for undertakings.
Commercial transactions between undertakings
As regards commercial transactions between undertakings where the payment date or period is not fixed in the contract, the invoice must be paid upon expiry of any of the following time periods:
- 30 calendar days from receipt by the debtor of the invoice or an equivalent request for payment;
- when the date of receipt of the invoice or the equivalent request for payment is uncertain or the debtor receives the invoice or equivalent request for payment before the goods or services, 30 calendar days from the date of receipt of the goods or services;
- when an acceptance or verification procedure to ascertain the conformity of the goods or services with the contract is provided for and the debtor receives the invoice or equivalent request for payment earlier than the date of acceptance or verification, 30 calendar days from that date; the procedure may not exceed 30 calendar days from the date of receipt of the goods or services, unless expressly agreed otherwise in the contract and provided it is not grossly unfair to the creditor.
While the Directive provides that the payment period determined in the contract may not exceed 60 calendar days, Belgian law stipulates that the parties may agree on a longer payment period, provided it is not grossly unfair to the creditor.
Commercial transactions between undertakings and public authorities
The payment periods mentioned above are also applicable to commercial transactions between undertakings and public authorities. The parties may agree on payment terms of more than 30 calendar days, if justified by the nature of the contract, but the payment period may in no case may exceed 60 days.
It should be noted that the Act of 22 November 2013 also applies when public authorities act as debtors but only when specific provisions of the public procurement rules do not apply.
Interest and compensation for recovery costs
Fair compensation of creditors is necessary in order to discourage late payment. Therefore, the act provides that the creditor is entitled to interest for late payment without the need to send a reminder, when the following conditions are met:
- the creditor has fulfilled its contractual and legal obligations; and
- the creditor has not received the amount due on time, unless the debtor is not responsible for the delay.
Unless the parties agree otherwise, the applicable interest rate is equal to the key interest rate plus 8 percentage points, rounded up to the next half percentage point. For commercial transactions with public authorities, the same interest rate applies, despites any agreement to the contrary.
Where interest for late payment is due, the creditor is also entitled to claim from the debtor, without the need for a reminder, a fixed amount of EUR 40 as compensation for recovery costs as well as reasonable compensation for any recovery costs exceeding this amount incurred due to the debtor's late payment.
Unfair contractual terms and practices
The law prohibits abuse of freedom of contract to the creditor's disadvantage. As a result, where a contractual term or practice relating to the payment date or period, the interest rate for late payment or the compensation for recovery costs is not justified by the terms granted to the debtor or mainly serves to procure an additional advantage for the debtor at the creditor's expense, it may be regarded as abusive and challenged before the courts.
In particular, a contractual provision which excludes interest for late payment or which excludes compensation for recovery costs shall be deemed grossly unfair.
Paying suppliers late is a common practice, and companies may go bankrupt waiting to be paid. Small and medium-sized enterprises are particularly exposed to the risks of late payment. The late payment culture must change; the Act of 22 November 2013, which gives businesses new tools to combat late payment, is a step in the right direction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.