Late Payment Directive (2011/7/EU)

Directive 2011/7/EU on combating late payment in commercial transactions, which replaced the earlier Directive 2000/35/EC, came into force across EU member states in March 2013. Its primary objective is to protect suppliers, especially small and medium-sized enterprises, from the cash flow harm caused by buyers who delay payment beyond agreed or statutory terms. The Directive applies to all commercial transactions, but it imposes stricter obligations on public authorities, recognising that public bodies have both the ability to pay on time and a duty to model responsible payment behaviour.

What is the Late Payment Directive (2011/7/EU)?

The Directive establishes two parallel frameworks: one for transactions between businesses and one for transactions between businesses and public authorities. The public authority rules are the more prescriptive:

Maximum payment terms for public authorities. Public authorities must pay within 30 calendar days of receipt of an invoice or, where a verification or acceptance procedure applies, within 30 days of the verification date (and verification itself must be completed within 30 days of receipt of goods or services). Member states may, in exceptional circumstances, allow public authorities in certain sectors to agree terms of up to 60 days, but longer terms are prohibited.

Automatic interest on late payment. Where a public authority pays late, interest accrues automatically from the day after the payment deadline at the European Central Bank's reference rate plus at least 8 percentage points. The supplier does not need to send a reminder or make a demand; the interest right arises automatically.

Compensation for recovery costs. On the first day that interest becomes due, the supplier is automatically entitled to a minimum flat-rate compensation of EUR 40 per late payment to cover recovery costs, in addition to the statutory interest. If recovery costs exceed EUR 40, the creditor may claim the full reasonable amount.

Retention of title. The Directive also facilitates the use of retention of title clauses, protecting suppliers by preserving ownership of goods until payment is received.

The Directive does not directly alter the payment terms in individual contracts but sets a legal minimum that cannot be contracted away. Contractual terms that deviate from the Directive to the detriment of the creditor are either void or may be declared grossly unfair by a court.

Why it matters for bidders

For suppliers working under public contracts, the Directive gives you legally enforceable rights if a contracting authority pays late. You do not need to renegotiate your contract or serve a formal notice to trigger the interest entitlement; it arises automatically from the day after the payment deadline expires. This makes late payment a quantifiable risk for public bodies, which in theory incentivises prompt payment.

In practice, enforcement depends on suppliers being willing to claim interest and compensation, which creates relationship risk with ongoing buyers. Understanding your rights under the Directive also informs how you price and manage cash flow on public contracts, particularly in markets where public bodies have historically paid slowly.

Example

A Finnish software company delivers a software maintenance service to a Belgian federal agency in January and submits an invoice on 31 January. The agency has 30 days to pay, so the deadline is 2 March. Payment arrives on 1 April, 30 days late. The company is automatically entitled to statutory interest at the ECB reference rate plus 8 percentage points on the outstanding amount, calculated from 3 March to 1 April, plus the EUR 40 flat-rate recovery compensation, with no need to send a separate demand.

Frequently Asked Questions

Does the Directive apply in the UK after Brexit?

The UK transposed the Directive before Brexit, and the substantive provisions continue to apply in UK law under the Late Payment of Commercial Debts (Interest) Act 1998 as amended, which provides broadly equivalent rights. UK businesses dealing with UK public authorities continue to benefit from the 30-day payment rule and statutory interest.

Can a public authority contract out of the Directive's payment terms?

No. The Directive expressly prohibits contractual terms that deviate from its provisions to the detriment of the creditor where those terms are grossly unfair. Payment terms longer than 30 days (or 60 days in exceptional cases) in public authority contracts are prohibited, and any such term is either void or challengeable as grossly unfair.

Does the Directive cover subcontractors dealing with main contractors on public projects?

The Directive applies to commercial transactions between businesses generally, so a subcontractor can claim against a main contractor under business-to-business rules. The stricter 30-day rule applies specifically to transactions where a public authority is the debtor, not to the contractual chain below the main contractor.