The European Union has recognised that late payments in commercial transactions negatively affect the entire European economy, as each year, across Europe, thousands of businesses go bankrupt waiting for their invoices to be paid. With the objective of protecting European businesses, particularly SMEs, against late payment, the EU adopted Directive 2011/7/EU of the European Parliament and of the Council of 16th February 2011 on combating late payment in commercial transactions, with the scope of encouraging enterprises and public authorities to comply with payment deadlines and ensure the smooth functioning of the European single market.
As a deterrent on late payments in commercial transactions, Directive 2011/7/EU, which was transposed into Maltese law by virtue of Legal Notice 272 of 2012, provides that a creditor is entitled to charge interest on late payments equivalent to 8% plus the European Central Bank's reference rate, which, as of the 1st of January 2024, has amounted to 12.5%. The reference rate is calculated every six months, on the 1st of January and on the 1st of July of every year. Since the last calculation, there has been a rise of 0.5% which, as of 1st July 2023, stood at 12%.
Notably, the 12.5% interest rate only applies to late payments in "commercial transactions" consisting of the sale and delivery of goods, or the provision of services, for remuneration, between (i) private and public undertakings; (ii) undertakings and public authorities; and (iii) main contractors and their suppliers and subcontractors. This is a restrictive list and therefore does not apply to any other transactions.
Effectively, as of 1st January 2024, creditors involved in any one of the commercial transactions listed above, are entitled to charge interest on late payments at 12.5% from the day following the date or the end of term for payment agreed in the contract of sale. Where parties to any one of the commercial transactions listed above do not specify the time from when interest on late payments starts to accrue, the law provides that the rate of 12.5% shall apply after the lapse of thirty (30) calendar days from the date of receipt of goods or services, or thirty (30) calendar days from the date of invoice. The creditor may proceed with the claim for late payment against the debtor without notifying the debtor that the amount is due. Additionally, the creditor may also claim compensation for its recovery costs at a minimum of forty Euro (€40).
Lastly, enterprises have to pay their invoices within sixty (60) calendar days, unless they expressly agree otherwise and provided it is not grossly unfair to the creditor. In the case of transactions between undertakings and public authorities, the period for payment shall be thirty (30) calendar days if not expressly agreed in the contract and may not exceed sixty (60) calendar days if fixed in the contract. However, in case the client is a public authority which carries out economic activities of an industrial or commercial nature and if the public authority provides health care, and the payment period is not expressly fixed in the contract, the payment period shall not exceed sixty (60) calendar days.
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.
