Although not generally well-known to most U.S. contracting professionals servicing the retail sector, European Directive 2011/7/EU on combating late payment in commercial transactions required member states to enact provisions in their national legislation by March 16, 2013 which set maximum commercial payment terms.
The provisions of the Directive apply to commercial transactions between an EU and non-EU buyer/sellers depending upon which law applies to the transaction in case of dispute – national law transposing the Directive or the legislation of the other country. All 28 Member States have notified the European Commission of their national transposition measures and the directive also applies to undertakings organized in the European Free trade Association States of Iceland, Liechtenstein, Norway and Switzerland.
The Directive requires businesses to generally pay their invoices within 60 days, unless:
Aggrieved business creditors are automatically entitled to interest for late payment and the right to claim €40 per invoice, plus any other costs that you have reasonably incurred to receive the payment that is already late, including administrative costs, debt collection costs, legal costs etc.
In general, a national judge will determine whether a contractual term or practice is "grossly unfair" considering all circumstances of the case in question, including:
For example, any contractual term that excludes interest for late payment will likely be considered to be grossly unfair to the creditor and will either be unenforceable or will give rise to a claim for damages. A contractual term that excludes compensation for recovery costs will also likely be presumed to be unfair.
A few countries have gone further than the requirements of the Directive by establishing payment terms for business to business transactions in their national laws. For example:
This article was co-authored by Technology & Commercial Partner Marcus Pearl (London) and Attorney William Heinze (Atlanta). Please feel free contact the authors if you would like to discuss this topic further.