Late payments

The issue of 'late payment in commercial transactions' is governed by the European Communities (Late Payment in Commercial Transactions) Regulations 2012. as amended by:

European Communities (Late Payment in Commercial Transactions) (Amendment) Regulations 2013 - SI 74 of 2013

European Communities (Late Payment in Commercial Transactions) (Amendment) Regulations 2014 - SI 196 of 2014

European Communities (Late Payment in Commercial Transactions) (Amendment) Regulations 2016 - SI 281 of 2016.

The purpose of these regulations is to give legal effect to Directive 2011/7/EC of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions.

Under these regulations it is an implied term of every commercial transaction that where a purchaser does not pay for goods or services by the relevant payment date, the supplier shall be entitled to interest ('late payment interest') on the amount outstanding. Interest shall apply until such time as payment is made by the purchaser.

The regulations apply to commercial transactions in both the public and private sector.

Main provisions of the legislation

Late payment interest is payable if:

• there is no contract between the parties, then 30 days after the invoice is received by the purchaser or 30 days after goods/services are delivered if the date of receipt of the invoice is uncertain or the invoice was received before goods/services were delivered
• there is a contract between an undertaking and a public authority, then after the payment date referenced in the contract, which cannot exceed 30 days from the delivery of the goods
• there is a contract between 2 undertakings, then after the payment date referenced in the contract, which if greater than 60 days from delivery of the goods, must be expressly agreed in the contract and cannot be grossly unfair to the supplier
• Enterprises are automatically entitled, without the necessity of a reminder, to interest for late payments
• Where late payment interest falls due, the supplier is also entitled to the automatic payment of compensation costs
• Statutory interest rate for late payment is 8 percentage points above the European Central Bank’s reference rate
• Enterprises can challenge grossly unfair terms and practices.

Contact us

If you require further information on the issue of late payments, please send an email to the dedicated mailbox promptpayment@enterprise.gov.ie

Important Note:

While the department provides information in respect of late payments, it is important to note that it does not provide legal advice. Where specific interpretations of the late payment legislation are required, it is recommended that these be sought from parties with the appropriate expertise within the legal profession.

The European Communities (Late Payment in Commercial Transactions) Regulations 2012 provide that interest shall be payable in respect of a late payment.

The Regulations, which apply equally to the public and private sector, provide an entitlement to interest if payment, in respect of a commercial transaction, is late.

Applicable late payment interest rate

• Unless otherwise specified in an agreed contract, the Regulations provide that the interest rate will be the European Central Bank main refinancing rate (as at 1 January and 1 July in each year) plus 8 percentage points.
• The ECB rate in force on 1 January and 1 July apply for the following six months in each year.
• Penalty interest due for late payments should be calculated at a daily rate.

With effect from 1 July 2024, the late payment interest rate is 12.25% per annum (that is based on the ECB rate as at 1 July 2024 of 4.25% plus the margin of 8%). The daily rate is calculated as 12.25% divided by 365 days.

Interest calculator

Late payment interest can be calculated using this interest calculator.

Late payment interest rate since 16 March 2013 to date

(ECB rate + margin 8%)||

The European Communities (Late Payment in Commercial Transactions) Regulations 2012 provide that where late payment interest falls due in respect of a payment, in addition to this amount, the supplier is also automatically entitled to 'compensation for recovery costs', without the necessity of a reminder.

Regulation 9 of SI No 580 of 2012, refers:

9(1) It shall be an implied term of every commercial transactions that where late payment interest becomes payable under Regulation 4, the supplier shall be entitled, in addition to the late payment interest, to the amount specified in the Schedule to these Regulations as compensation towards relevant recovery costs incurred by the supplier as a consequence of late payment.

It is a government requirement that all central government departments, the Health Service Executive, the local authorities and all other public sector bodies (excluding commercial Semi-State bodies) pay their suppliers within 15 calendar days of receipt of a valid invoice.

This arrangement does not alter contractual relationships and does not change the legal position in relation to late payments.

This Unit collates and publishes the composite quarterly returns by central government departments of payments made to their suppliers within 15 days.

Background

Since 2009, central government departments have been improving their respective payment times so as to assist the cash flow of businesses. Departments are now obliged to pay their suppliers within 15 days of receipt of a valid invoice.

Subsequently, and as part of the commitments in the EU/IMF Programme for Ireland, the 15 day prompt payment requirement was extended beyond central government departments and rolled out to the Health Service Executive, the Local Authorities, State Agencies and all other Public Sector Bodies (excluding Commercial Semi-State bodies), in respect of valid invoices received, on or after, 1 July 2011.

Reporting requirements

As part of the 15-day prompt payment requirement, government departments and relevant public sector bodies are required to publish on their respective websites, their quarterly payment performance reports. Government departments are also required to publish the quarterly composite reports covering the bodies under their aegis.

Prompt Payment Official Notice

Small Businesses can attach an Official Notice of the 15-day prompt payment requirement to relevant invoices. Small businesses themselves should refer instances of non-adherence to the relevant government department, public sector body and State agency.

How can you protect your business against the scourge of late payers and bad debts? As a first step you need to ensure that your business has the right policies and payment practices in place.

Getting paid on time

Article written by Linda Barry, Assistant Director of the Small Firms Association

Getting paid on time is a never-ending concern for anyone in business, especially if your business is a small business. Late payment causes serious cash flow problems, requires firms to extend overdraft facilities and in some cases can even lead to insolvency and bankruptcy. So how can you protect your business against the scourge of late payers and bad debts? As a first step you need to ensure that your business has the right policies and payment practices in place:

Creditworthiness

• First, if credit is not required, don’t give it.
• If you do extend credit to customers, make sure you do your homework. Assess the risk by gathering information from the company itself as well as from external and independent sources. These could include trade references, bank references and even credit agency reports. Remember, in the management of credit, information is power.
• Categorise new customers according to risk. Vary the credit limit and payment terms accordingly. Be careful of letting the purchaser impose their own terms and conditions of trade.
• Ideally, put contracts in writing and ensure they contain fair payment terms that both parties have agreed and can live with. Include details of late payment interest to be paid and a mechanism to deal with disputes.
• Don’t forget to monitor and review existing customer limits. Consider their payment performance, the value of the trading relationship and its profitability. On this basis you may decide to offer them exclusive terms as a valued customer, maintain the existing relationship or put them on a stop list.

Credit Management Practices

• Proper credit management practices are a must in all businesses. Keep a proper record of who owes you what and when the debt is due for payment.
• Open and ongoing communication with your customers is also a must. Statements, regular telephone calls, emails and reminder letters should be used routinely in the collection process, even before the account is considered to be overdue.
• When phoning, always try to speak to the person responsible for payments. Find out their payment system e.g. the frequency of online payment or cheque runs. Take a note of the conversation and the commitments made and put a note in your calendar to follow up.