By Andrew Sciberras Camilleri
The late payment directive, introduced in 2005 and updated in 2012, provides for special rules to regulate commercial transactions between commercial undertakings. These provisions were introduced following an EU Directive, originally launched in the year 2000 in order to encourage trade within the European Union, as well as to protect commercial undertakings from abusive debtors. The Directive has been transposed into the Commercial Code, and can be found under Sub-title IA of Title II, Articles 26A to 26J.
It does not apply in all cases, and there are two criteria which must be met. Firstly, the payment in question must be in connection with the delivery of goods or the provision of services. Secondly, the transaction giving rise to the payment must be a commercial transaction, meaning that it is between two undertakings, or between an undertaking and a public authority.
An undertaking is defined as an organisation acting in the course of its independent economic or professional activity, even where it is carried out by a single person. Business to consumer transactions are explicitly excluded under Article 26B, and are regulated under the rules of the Civil Code.
When a transaction falls under the rules set out above, the business has certain benefits which he otherwise would not have. Firstly, the law specifically outlines when interest begins to run. Where the contract or invoice specifies a date when payment shall be due, interest shall begin to run from that date. Where however nothing is specified, Article 26C notes that interest shall begin to run 30 days from the date the invoice was received by the debtor, or 30 days from the date when the goods and services were received, whichever is longer.
Whereas normally interest is set at 8% per annum, where this Directive applies, the interest rate is typically higher. A variable interest rate is used, which is issued by the Ministry for Finance and at present sits at 10.15% per annum (1st July to 31st December 2025). The interest rate is updated every six months, on the 1st of January and the 1st of July of every year.
Additionally, the creditor may claim compensation from the debtor for any costs incurred in recovering the debt. Under Article 26E, the creditor may claim a ‘reasonable sum’ as recovery costs. What is reasonable is not defined, and it would be up to a court to decide whether an amount claimed by the creditor is reasonable or not. €40 is defined as the minimum amount to be claimed.
Increased interest rates and the compensation of costs incurred in the recovery of the debt are two elements which work to encourage the debtor to pay without delay. Ultimately the aim of this law is to promote trade, and to do so it is necessary for creditors to be comfortable giving credit. Therefore these rules are highly beneficial when dealing with a Business to Business relationship and should be kept in mind in debt collection cases.
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