Late Payment Interest

Late payment interest is one of the clearest and most enforceable supplier protections in European public procurement. Unlike many contractual remedies that require negotiation, notification, or proof of loss, late payment interest accrues automatically by operation of law the moment a payment deadline is missed. Despite this, large numbers of suppliers, particularly smaller ones, do not claim what they are owed.

What is Late Payment Interest?

Under Directive 2011/7/EU on combating late payment, suppliers are entitled to interest on overdue payments from public authorities at the statutory rate. The rate is calculated as the European Central Bank's main refinancing rate (the "reference rate") in force on the first day of the relevant half-year, plus eight percentage points.

The ECB publishes the reference rate twice a year (1 January and 1 July). The applicable rate for a given overdue payment is determined by which half-year period the payment deadline falls into. For example, if the ECB reference rate on 1 January 2026 is 2.5%, the late payment rate applicable to invoices overdue in the first half of 2026 is 10.5%.

Key features of the statutory regime:

• Automatic: interest begins to accrue on the day after the payment deadline expires, without any need for the supplier to issue a formal demand, a reminder, or a notice of default.
• No prior agreement required: the right to interest exists by law; it does not need to be written into the contract.
• Compensation add-on: in addition to interest, a minimum fixed compensation of EUR 40 per late payment is due to cover the supplier's internal recovery costs.
• Reasonable recovery costs: where the EUR 40 fixed compensation does not cover the actual cost of debt recovery (such as legal fees), additional reasonable costs may be claimed.

In the UK, equivalent provisions exist under the Late Payment of Commercial Debts (Interest) Act 1998, which sets a similar statutory interest rate (Bank of England base rate plus eight percentage points) for commercial transactions including public contracts.

Why it matters for bidders

Late payment interest is frequently unclaimed, particularly by SMEs who are reluctant to antagonise a public buyer from whom they hope to win future business. This reluctance is understandable but costly: on a EUR 500,000 overdue invoice at a 10% late payment rate, each month of delay costs approximately EUR 4,200 in unclaimed interest.

Suppliers should implement systematic invoice tracking that flags overdue payments, calculates the accruing interest, and generates formal interest claims. Many buyers, once presented with a formal claim, pay promptly. The process also creates an internal discipline around timely invoicing, which is the supplier's first obligation: interest does not accrue until a valid invoice has been submitted.

Example

A Greek regional authority owes EUR 120,000 on a facilities services invoice submitted on 1 February. The contractual payment period is thirty days, so the deadline is 3 March. Payment is made on 15 April, which is forty-three days late. The applicable ECB reference rate is 2.15% (first half of the year), giving a late payment rate of 10.15%. Interest accrues at 10.15% per annum on EUR 120,000 for forty-three days, amounting to approximately EUR 1,432, plus EUR 40 fixed compensation.

Frequently Asked Questions

Does interest have to be separately invoiced or claimed?

No. Interest accrues automatically, but in practice most suppliers submit a formal interest claim (a separate invoice or a supplementary line item) to trigger payment. A formal claim creates a paper trail and a clear obligation on the buyer to pay or dispute.

Can a contracting authority contractually reduce or eliminate the interest entitlement?

No. Directive 2011/7/EU specifically provides that any contractual terms that derogate from the directive to the serious detriment of the creditor are void or unenforceable. The statutory interest rate and the right to compensation cannot be contractually waived in advance.

Does late payment interest apply to disputed invoices?

Interest accrues on the portion of an invoice that is not genuinely in dispute. If a buyer disputes part of an invoice in good faith, the undisputed portion continues to attract interest if not paid on time. Buyers sometimes use spurious disputes to delay payment; the directive's protections are intended to address precisely this behaviour.