On 6 February, the Court of Justice of the European Union (CJEU) issued a key ruling with regard to the Late Payment Directive. The ruling clarifies the interpretation of Article 3(5) of the Directive on payment terms exceeding 60 days. This ruling has important implications for companies facing late payment, including payment terms that exceed the legal cap set by the Directive currently in force.
The case (C-677/22) involved a dispute between a debtor and creditor in a Polish court. The creditor challenged the debtor for unilaterally setting a payment term of 120 days via a model contract posted on their website. This term was not negotiated between the parties and was imposed due to the debtor’s dominant position. The creditor, constrained by their financial situation, had no choice but to accept these terms, without any possibility for negotiation to reduce the payment period to 60 days.
The Court ruled that, in this case, such a payment term could not be considered as having been expressly agreed by both parties, as required by Article 3(5) of Directive 2011/7. Therefore, it was found to be non-compliant with the Directive. A payment term exceeding 60 days is compliant with the Directive only if it can be clearly ascertained that the parties have expressed unambiguously “their concurrence of wills to be bound specifically by the term concerned”.
The Court further emphasized that the Directive’s purpose is to combat late payments in commercial transactions and promote a culture of timely payments, essential for the proper functioning of the internal market and the competitiveness of businesses, especially SMEs. Article 3(5) reflects these objectives by protecting creditors from late payments by establishing a payment period not exceeding 60 calendar days, from which deviation is only lawful when 2 cumulative circumstances are met: a) the will of the parties to be bound by that term is evident and beyond question and b) the term is not grossly unfair to the creditor
As highlighted in the Annual Report of the EU Payment Observatory, nearly 55% of EU businesses in 2023 reported having to accept payment terms imposed by the debtor. This reality is indicating that the spirit and letter of the Late Payment Directive, notably Article 3(5) is not being applied as intended.
Given the above, EBC welcomes the decision by the CJEU, and reiterates its call for a strengthened EU-wide legal framework that robustly curbs the culture of late payment, which suffocates our construction SMEs. EBC therefore calls upon EU co-legislators to resume negotiations and build on the work accomplished during the previous legislature to bring forth a strong EU law to support SMEs.
 | To read the ruling (case C-677/22) by Court of Justice of the European Union, click here To read EBC’s latest article on the EU Payment Observatory Annual Report 2024, click here To consult the EBC position paper on the Revision of the Late payment directive, click here |
