The Regulations, which apply equally to the public and private sector, provide an entitlement to interest if payment, in respect of a commercial transaction, is late.
What the current late payment interest rate is
With effect from 1 January 2021, the late payment interest rate is 8.00% per annum (that is based on the ECB rate as at 1 January 2021 of 0.00% plus the margin of 8%). This rate equates to a daily rate of 0.022%.
Penalty interest due for late payments should be calculated on a daily basis.
Unless otherwise specified in an agreed contract, the penalty rate is the European Central Bank main refinancing rate plus 8 percentage points.
The ECB rates in force on 1 January and 1 July apply for the following six months in each year. Only one ECB rate will apply to a late payment – that is the ECB rate in force on the payment date.
To calculate the interest due on a late payment, the amount of the debt should be multiplied by the number of days for which the payment is late, multiplied by daily late payment interest rate in operation on the date the payment became overdue.
amount of debt: €500
number of days late: €25 days
late payment interest rate in operation on the date the payment became overdue: 8.00%
daily interest rate in operation on payment date: 0.022%
Calculation as follows:
1000 x 25 x 0.022 = 550 = €5.50 (550 divided by 100)
What a 'commercial transaction' is in terms of Late Payment Regulations
As defined in the Regulations, a “commercial transaction” means a transaction between undertakings, or between an undertaking and a public authority, which involves the delivery of goods, or the provision of services, for remuneration”.
Who the Late Payment Regulations apply to
The European Communities (Late Payment in Commercial Transactions) Regulations 2012 apply to “commercial transactions” in both the public and private sectors. They do not apply to:
contracts made before 16 March 2013
transactions with consumers
debts that are subject to other laws, for example insolvency proceedings
What the relationship is between late payment interest and compensation for recovery costs
Where late payment interest falls due, in addition to the amount of late payment interest, the supplier is also legally entitled to compensation of recovery costs as outlined in the schedule to the Regulations.
The supplier is automatically entitled to compensation costs without the necessity of a reminder and, therefore, is not required to cite evidence of having incurred recovery costs.
What the position is regarding contracts made before 16 March 2013
In respect of contracts made before 16 March 2013, the European Communities (Late Payment in Commercial Transactions) Regulations 2002 apply. However, in cases where a contract made before 16 March 2013 is being renewed, the 2012 Regulations apply.
Notifying a customer of your intention to charge late payment interest and compensation for recovery costs if payment is late
It is not necessary for a customer to have been notified in advance of your intention to charge late payment interest and compensation costs and you do not have to refer to it in your contract.
Issuing an invoice for late payment interest and compensation
You should not issue an invoice for the interest and compensation. Instead you should write to your purchaser informing them that as payment is late, you are now seeking payment for late payment interest and compensation costs.
Interest accumulates on a daily basis, so the longer the debt remains unpaid, the more interest you (the supplier) are due. If your customer ignores your request for late payment interest and compensation, then you need to contact them again to chase up, explaining that interest is continue to accrue.
What you should do if a customer is refusing to pay
If a customer refuses to pay you, it is important that you establish the reason why. It could be that the customer is refusing to pay due to a disputed invoice. In which case, the onus is on you to resolve the dispute.
You should write to your customer acknowledging the outstanding payment, followed up by a phone call or email, if necessary. If at this stage, your request for payment is ignored, it may be necessary to employ the services of a Solicitor or Debt Collecting Agency to pursue payment of the debt.
How much compensation you're entitled to under Late Payment Regulations
Compensation for recovery costs should be paid automatically to the supplier without the necessity of a reminder. The Regulations provide that the following “Flat Rates” should be used:
Schedule of Compensation Costs:
Amount of late payment (that is, invoice value)
Not exceeding €1000
Exceeding €1000 but not exceeding €10,000
In addition to the compensation for recovery costs set out in the above Schedule, the 2012 Regulations also entitles the supplier to obtain further recovery costs, for example, the cost of using a Solicitor or employing a debt collection agency.