Payment Terms (EU Directive 2011/7/EU)

Payment terms in public procurement across Europe are shaped by Directive 2011/7/EU on combating late payment in commercial transactions, which sets binding minimum standards for when public bodies must pay their suppliers. Late payment has historically been a significant problem for suppliers, particularly smaller firms, making this directive one of the most practically important pieces of procurement-adjacent law for businesses that win public contracts.

What are Payment Terms under EU Directive 2011/7/EU?

Directive 2011/7/EU (which replaced the earlier Directive 2000/35/EC) establishes the following core obligations for transactions between businesses and public authorities:

• Thirty-day default period: public authorities must pay invoices within thirty calendar days of receiving the invoice, or within thirty days of accepting or verifying the goods or services if acceptance is a contractual prerequisite.
• Maximum sixty-day period: for transactions where verification is objectively necessary (such as complex technical deliverables), the acceptance or verification period may extend to thirty days, giving an effective maximum payment period of sixty days.
• Prohibition on abusive terms: contracting authorities cannot contractually extend payment terms beyond these limits unless objectively justified by the nature of the contract. Agreements that deviate from the directive's protections to the serious detriment of the supplier are void.
• Automatic interest: if payment is late, interest accrues automatically at the reference rate plus eight percentage points (see late payment interest).
• Compensation for recovery costs: suppliers are entitled to a fixed minimum compensation of EUR 40 per late payment to cover debt recovery costs, in addition to interest.

The directive has been implemented across all EU member states, with some member states (including Germany, France, and Italy) applying stricter national rules or specific sector rules. In the UK, equivalent protections continue to apply under the Late Payment of Commercial Debts (Interest) Act 1998, as retained and amended post-Brexit.

Why it matters for bidders

Understanding your payment rights under the directive is essential for cash flow management on public contracts. Many suppliers, particularly SMEs, do not claim the interest and compensation they are automatically entitled to when public bodies pay late, leaving money on the table.

When reviewing contract terms, look closely at any provisions that seek to extend payment periods beyond sixty days or that make payment conditional on steps not required by the directive (such as approval by a third-party project manager). Such terms may be void under the directive's anti-abuse provisions. The payment terms you negotiate at contract signature stage directly affect your working capital requirements throughout the contract duration.

Example

A Polish municipality awards a software development contract with milestone-based payments. The contract provides for a thirty-day payment period from receipt of a valid invoice. The supplier submits an invoice on 1 March. The municipality pays on 2 April, which is thirty-two days later. The supplier is automatically entitled to interest at the European Central Bank's main refinancing rate plus eight percentage points on the overdue amount from 1 April, plus EUR 40 compensation, without needing to claim these in advance.

Frequently Asked Questions

Does Directive 2011/7/EU apply to all public contracts?

Yes, it applies to commercial transactions between businesses and public authorities across EU member states, regardless of contract value or sector. It covers supplies, services, and works contracts. Member states may apply the directive to contracts below the EU procurement thresholds as well as above-threshold contracts.

Can a contracting authority lawfully set sixty-day payment terms in the contract?

Only where an extended acceptance or verification period is objectively necessary and provided for in the contract. A simple preference for longer payment periods is not sufficient justification. Terms that grossly deviate from the directive's protections to the detriment of the supplier are void.

What if my contract includes both interim payments and a final account?

The directive applies to each invoice individually. Each interim payment invoice triggers its own thirty-day clock from the date of receipt or acceptance. Late payment interest accrues on each overdue payment separately.