Combating Late Payment in Commercial Transactions


It has long been recognised that late payment of business debt is a serious problem for suppliers of goods and services.  Late Payment can make it necessary for firms to increase borrowing and to extend overdraft facilities.  Time and resources can be taken up on maintaining and collecting late payments instead of being devoted to other areas of business.

An EU wide law will come into effect on 8 August 2002 to combat late payment in commercial transactions. This law will be implemented in Ireland by the European Communities (Late Payment in Commercial Transactions) Regulations 2002 which provide that penalty interest will become payable if payments for commercial transactions are not met within 30 days, unless otherwise specified in a contract or agreement.  Any commercial contract made under the law of another member state of the EU will have access to similar entitlements resulting from this legislation.

Current Position in Ireland

In 1994, a Task Force on Small Business recommended that legislation be introduced to ensure Prompt Payment by the public sector.  The Prompt Payment of Accounts Act, 1997 was enacted following this recommendation. Ireland was one of the first countries in the EU to introduce such a law.  This Act requires public sector organisations to pay their bills on time or else pay penalty interest. The effect of this Act has been to substantially improve the payment times in the public sector.

Payment periods and payment delays in EU Member States

There are significant differences between the Member States of the EU as regards payment periods and payment delays.  Payment deadlines vary from as low as 27 days to a high of 94 days.  The average is 53 and Ireland is just below this at 51 (see table).  Although these figures are some six years old we do not have reason to believe they have changed significantly. Given the wide disparity in current average payment periods throughout Europe, it is hoped that this harmonising measure will ease cross-border trading difficulties and help promote a culture of prompt payment in Ireland.

Outline of the Regulations


The Regulations will apply to commercial transactions in both the public and private sectors.  However, there are some exceptions.  These are:

Payment Period

The Regulations provide that interest shall be payable in respect of a late payment.  In addition, it will be an implied term of every contract that interest is payable if debts are not paid on time.  A payment is regarded as late when 30 days have elapsed unless an alternative payment period is specified in an agreed contract.  In the case of an agreed contract payment is regarded as late if the payment period exceeds the date or end of the period for payment specified in the contract.  Where the contract does not specify a payment period a default payment period of 30 days will apply.  This 30 day payment period begins on:

a)             the date of receipt by the purchaser of an invoice for payment or

b)             the date of receipt of the goods or services where;

        1.  the date of receipt of the invoice is uncertain or

2.  the purchaser receives the invoice before the delivery of the goods or services in question.

In cases where the parties have agreed a procedure for acceptance or verification of the goods or services, the 30 day payment period starts after this process has been completed.

Rate of Interest

The interest rate chargeable for late payment is the European Central Bank (ECB) rate plus 7 percentage points.  Parties to a contract may agree an alternative interest rate. The ECB rates in force on 1 January and 1 July apply for the following six months in each year. Only one rate will apply to a late payment which should be the rate in force on the payment date.

The annual interest rate applicable when the Regulations come into operation on 8 August 2002 will be 10.25% (i.e., the current ECB main refinancing rate of 3.25% + the margin of 7%).  That equals a daily rate of 0.0281%.  This rate should be applied to late payments on a daily basis. From 1 January 2003 you should check our website for the latest applicable late payment interest rate ( The up to date ECB rates can also be seen on the ECB website (

Grossly Unfair Terms

Contracts and terms of trade (interest rate chargeable and payment period) must be fair. The use of terms that are grossly unfair may be unenforceable.  Criteria for testing whether terms are grossly unfair are specified in the Regulations and include the following:

Grossly unfair terms may be challenged in Court by a supplier and compensation may be awarded.

Representative actions

Grossly unfair trading terms may also be challenged by organisations representing small and medium sized enterprises. To challenge grossly unfair trading terms, representative organisations must have a legitimate interest in and be representative of  SMEs.   Representative organisations may take an action, before a court on behalf of its members, seeking a ruling that contractual terms drawn up for general use are grossly unfair.

Find out more

Further information and a copy of the Regulations is available on the Department's website at .    The website also includes a list of frequently asked questions and  is updated on a regular basis. You will also find practical tips on Credit Management and improved payment practices.

Note:   This Guide has been prepared for general guidance.

It does not constitute legal advice and no liability can be accepted by the authors or publishers for its contents.

Department of Enterprise, Trade and Employment[1]

[1] July 2002