Late Payments

EU Late Payment Regulations

It is possible for a contract to provide for a rate of interest on sums of money that are overdue. Provided that this is not a penalty, it will be generally enforceable.  The contract should specify the rate either as a percentage or with reference to an underlying base rate.  It is necessary to specify whether the rate is chargeable as simple interest or as compound interest.  If interest compounds, it is necessary to set the time (the rests) at which it is compounded.

The European Communities (Late Payment in Commercial Transactions) Regulations 2012 give effect to an EU directive providing common European Union rules on interest on the late payment of commercial accounts and debts.  They repeal earlier 2002 regulations.  The regulations apply both to the public and private sector.

The regulations apply to a commercial transaction.  This is a transaction between businesses and with a public authority.  A transaction may be for the provision of services or delivery of goods for payment or other reward.

Late Payment I

There is “late payment” when payment is not made within the period prescribed by the contract or by law, provided that the supplier has fulfilled his contractual and legal obligations.  Where the delay or non-payment is due to a default by the supplier under the terms of the contract, then there is no late payment. The required payment date in a commercial transaction is the date or the end of the period for payment specified in the contract.

In the case of contracts made after 25th May 2016, it is provided that in the case of a commercial transactions (those between businesses / undertakings), where the payment date or the duration of payment period exceeds 60 calendar days, that date, or the duration of that period, must be expressly agreed in the contract, and must not be grossly unfair to the supplier.

In the case of a commercial transaction between a business and a public authority, that date, or the duration of that period, must not exceed 30 calendar days.

Where no date is specified, the date is deemed to fall due 30 calendar days after date of receipt of the invoice.  Alternatively, it falls 30 calendar days after the date of delivery of the goods or the provision of services, where the date of receipt of the invoice is uncertain or where the purchaser receives the invoice before the delivery of goods or the provision of the service.

Late Payment II

Where the contract does not specify a date or period for payment, but a procedure for acceptance or verification by which conformity of the goods is to be ascertained is provided by law or under the contract, and the purchaser receives an invoice earlier than or on the date for such acceptance or verification, the date falls 30 days after such verification or acceptance.

Where a contract specifies a date for payment, this is the relevant date.  Where, however, the date is more than 60 days from the date of delivery of the goods or the provision of the service, the date must be expressly stated in the contract and must not be unfair to the supplier. This has been restated in amended terms above for contracts made after 25th May 2016.

Where an invoice is sent by post or electronic transmission, it is deemed received in the normal course of post or in the normal course of that transmission service, unless the contrary is shown.

The right to interest on late payment continues to apply notwithstanding that the benefit of the payment may be assigned to a third party.


The regulations do not apply to contracts and dealings with consumers.

The regulations do not apply to contracts made before 16th March 2013.  The older substantially similar regulations apply to those before that date.

The regulations do not apply to debts owed on insolvency or restructuring. The legislation does not apply to debts and sums which fall due, for which there is another right of interest provided by law.

Implied Term for Interest

It is an implied term of every commercial transaction that where the purchaser does not pay for

the goods or services by the above payment date as defined, the supplier is to be entitled to interest.  This is “statutory late interest”.  It is not necessary to serve a reminder of the amount due or outstanding under the contract or of the amount of interest.

The entitlement to late interest arises on the amount outstanding at the relevant date and ends on the date of payment.  The right is available provided that the supplier is not in default.

Unless the contract provides otherwise, the statutory late sum is to be the amount of interest charged by the ECB as its main refinancing rate and so specified at the beginning of the half-yearly period (the preceding 1st January or 1st June), plus 8%.  This is currently 8.25% ((0.25%+8) %; (June 2017).  The reference rate is published periodically and applies for the period specified by law.

Setting Aside Contractual Interest Rate

Where a contract between the party’s purports to waive or vary the above-implied term or the relevant payment date and the supplier considers the waiver or variation grossly unfair, he may apply to the Circuit Court or an arbitrator for an award under the regulation.

The Circuit Court or arbitrator may make an award that the term is grossly unfair to the supplier or that that the term is unenforceable.  In so doing, he may vary the term by substituting for that term the relevant payment date as defined under the regulation or such other term as the court or arbitrator deems appropriate.

Alternatively, he may direct the purchaser to pay compensation, costs and expenses to the supplier.  This may be done if it appears to the court or arbitrator appropriate, having regard to any loss, costs and expenses incurred by the supplier by reason of the term concerned.

Factors in Setting Aside Order

In making an order, the Circuit Court or arbitrator is to take account of all the circumstances, including

  • good commercial practice;
  • the nature of the goods concerned;
  • whether the purchaser has an objective reason to deviate from the regulations;
  • the relative bargaining strength of the purchaser and supplier
  • whether the supplier received an inducement to agree to the term or on accepting it had the opportunity of entering a similar contract with other persons without having to accept such a term;
  • whether the supplier knew or ought reasonably to have known of the existence and extent of the term having regard amongst other things, to the custom of the trade and any previous course of dealings between the parties.

If a supplier wishes to apply to an arbitrator for the above purposes, he may request the purchaser to agree on the appointment of a named person. In the absence of agreement, the arbitrator is to be such person, to be appointed on the application of either party by the President of the Law Society of Ireland, is the arbitrator.  The Arbitration Act 2010 is to apply to the arbitration.

Representative Bodies and Standard Contract

Representative bodies may make applications to the Circuit Court in relation to unfair payment terms. A representative body is an organisation with a legitimate interest in representing small and medium business sized enterprises in a specific sector of the economy or geographical area.  SMEs are defined with reference to the EU standard definition.

The body may make an application in relation to contractual terms drawn up for general use which waive or purport to waive the relevant payment date or any of the above-implied terms.  A representative body may of its own initiative or at the request of SMEs which it represents, apply to the Circuit Court for an order.

The Circuit Court may make an order if it believes the terms are grossly unfair and unenforceable.  It may prohibit the use or the continued use of the terms concerned, as appear to it to be appropriate.  The court may make such order as it sees fit.

The representative body is to publish a notice of intention to apply to the court in at least two daily newspapers.  Every person having an interest in the application may apply to the court and be heard.

Additional Compensation for Late Payment

It is implied term in commercial transactions that where statutory late payment interest becomes payable, the supplier is entitled without the necessity for a reminder, in addition to the statutory interest for late payment, to a fixed sum amount of compensation towards or for the relevant recovery costs incurred as a consequence of late payment.  The supplier need not give evidence of having incurred any such costs or expenses.

The amount of fixed compensation is set under the regulations and may be varied.  In respect of

  • amounts less than €1000, it is €40;
  • amounts of €1000 to €10,000, it is €70;
  • amounts over €10,000, it is €100.

The supplier, in addition to the fixed sum referred to above, is entitled to obtain reasonable compensation for any recovery cost exceeding the fixed sum and incurred due to the purchaser’s late payment.  This may include expenses incurred in instructing a lawyer or employing a debt collection agency.

State Bodies

The Prompt Payments of Account Act came into effect in 1998.  It obliged public sector bodies to pay accounts promptly and to pay interest.  The Act has been amended and superseded to some extent, by the above late payment regulations derived from EU law.  Those regulations also apply to public bodies.

In 2009 the Government announced a non-statutory requirement to reduce the payment period by central Government departments to 15 days.  Every effort consistent with proper financial procedures is to be made to ensure that suppliers are paid with this timeframe.

The Prompt Payment of Accounts Act applies to all public bodies.  This includes central Government departments, commercial and non-commercial semi-state bodies, health authorities, local authorities and their subsidiaries.  It applies to contractors under public sector contracts. The legislation applies to main contractors who obtained goods or services from another person to supply, or contracts with another person to provide goods, to any of the above types of state body.

An invoice sent by post or electronic transmission comprising an invoice is to be taken as received in the normal course of post unless the contrary is proved.

Tax Clearance Cert

A supplier who is obliged to produce a tax clearance certificate is not entitled to payment or interest until it is produced.  A tax clearance certificate is required under many schemes in relation to the supply of goods or services to public sector entities.  A tax clearance certificate may be issued by the Collector General confirming that the holder is in compliance with his obligations under taxes legislation.

The Department of Finance has made a scheme requiring compliance with and production of tax clearance certificates in respect of most types of public contract.  There are anti-avoidance provisions to prevent person circumventing the obligation to obtain a tax clearance certificate by conducting activities through a connected person.  An application for a tax clearance certificate may be refused where an attempt is made to obtain a tax clearance certificate through a connected party.

Public Sector Bodies Payment Practices

Where a Minister is of the opinion of the practices of a public-sector purchaser are unreasonable in the circumstances, he may advise the purchaser of that opinion, give it the opportunity to make representations, and after consulting the Minister for Finance may by order, direct the purchaser not to agree a time provision for payment of goods or services later than 45 days after the relevant purchase date.

A purchaser State body covered by the legislation is to include details of its payment practices, where it is required to publish an annual report by statute.  Where it is not required to publish an annual report, it is to lodge an annual review of its payment practices with the Minister.

An auditor auditing the affairs of a public body is to report on whether it has complied with its obligations under the legislation.

There is no obligation on a public-sector body to pay monies where a tax clearance certificate is required under a scheme applicable to that type of payment and has not been produced.

References and Sources

European Communities (Late Payment in Commercial Transactions) Regulations 2012, S.I.

No. 580 of 2012 [ European Communities (Late Payment in Commercial Transactions) (Amendment)

Regulations 2013, S.I. No. 74 of 2013

European Communities (Late Payment in Commercial Transactions) (Amendment)

Regulations 2014, S.I. No. 196 of 2014

European Communities (Late Payment in Commercial Transactions) (Amendment)

Regulations 2016, S.I. No. 281 o

Prompt Payment of Accounts Act 1997459

Prompt Payment of Accounts Act, 1997 (Commencement)

Order 1997, S.I. No. 239 of 1997

Prompt Payment of Accounts Act, 1997 (Rate of Interest

Penalty) Order 1997, S.I. No. 502 of 1997460

Prompt Payment of Accounts Act, 1997 (Rate of Interest

Penalty) (Amendment) Order 1999, S.I. No. 62 of 1999461

Prompt Payment of Accounts Act, 1997 (Amendment of

Schedule) Order 2000, S.I. No. 383 of 2000

Prompt Payment of Accounts Act, 1997 (Rate of Interest

Penalty) (Amendment) Order 2000, S.I. No. 392 of 2000462