How do I handle unpaid invoices? Who pays for costs incurred?
Your rights and obligations, explained.
The order has been delivered and the invoice sent. But no payment is forthcoming, and you are waiting for your money. The EU issued a Directive in 2011 to speed up payments. The Directive sets out rules for dealing with late payments that apply to every EU country.Here you can find out what to do if an invoice has not been paid, when to engage a debt collection service and who is responsible for paying debt collection fees.
The EU legal system requires member states to implement EU Directives into national law. In other words: whatever is set out in the EU directive has to be introduced or the current laws changed to match in Germany, Italy, Spain, etc. This ensures that all European Union citizens are governed by a unified legal system.
The regulations laid out in Directive 2011/7/EU, which apply in all EU member states, provide clear information on the rights and obligations pertaining to all parties and governing what to do when invoices remain unpaid. This is particularly important for an international industry such as logistics. It also greatly simplifies certain processes for both transport customers and service providers.
The following thus applies to debtors and creditors:
Debts must be paid immediately, unless otherwise agreed upon within the contract. If there is an agreed upon payment period in the contract, then the debt must be paid within that period. If there is no agreed upon payment period in the contract, then payment is considered late after a period of 30 days.
Before this Directive, companies within the transport and logistics industry sometimes agreed on longer payment periods. Now, payment deadlines longer than 60 days after receipt of the invoice are allowed only in exceptional circumstances and must be laid out within the contract.
The creditor can require the debtor to reimburse the effort and expense incurred during collection of the debt. This may include the cost of a dunning notice, a lawyer or the hiring of a debt collection service. For you, the creditor, this means that you can require the debtor to cover the costs of the debt collection service. The additional costs incurred by the creditor also include administrative costs and internal costs. A flat fee of EUR 40 can also be claimed from the debtor. However, if the creditor charges the flat fee of EUR 40, the flat fee is to be subtracted from the total extra costs to be reimbursed (dunning/debt collection/lawyer).
The creditor can also require the debtor to pay default interest.
According to the EU Directive, this interest is nine percent above the base interest rate and must be paid by the debtor. This means that, in the event of late payment, there may be additional interest added to the original cost of the invoice. This applies to B2B transactions. The regulation does not apply to invoices sent to private persons.
The following must apply in order for the above listed rights and obligations to apply:
The regulation applies to the purchase of goods and services. However, if costs occur outside of the original contractual agreement, the EU Directive no longer applies. If, for example, damage is done during transport and the damage is to be reimbursed, then this is not considered part of the original transport service.
An example: a HGV driver damages a building while approaching the loading dock. The recipient of the goods wants to be reimbursed for this damage and sends an invoice. The HGV driver does not think he is at fault and initially refuses to pay the invoice. In our example, he is the debtor. The invoice is thus in dispute. The creditor believes that they are in the right and hires a debt collection service. In this case, any debt collection service costs are not eligible for reimbursement.
Another example: The accounting department accidentally paid an invoice twice. The company now wants the extra money to be transferred back to their account, but it doesn’t happen, A debt collection service is contacted to negotiate return of the extra payment. In this case, too, the debtor would not be required to pay the debt collection fees, because the money in question is not connected to the original service.
The agreed upon payment date has passed. The payment must be late and you must be able to clearly show that you have not received any money, even after 30 days have passed. Only then can you take further steps, for example hiring a debt collection service.
There is no requirement to send a dunning notice or similar payment reminder, but it certainly cannot hurt. If the invoice has not been paid within the 30 day window, you are no longer required to send a dunning notice to the customer. Instead, the creditor may choose to hire a lawyer or a debt collection service. The debtor must be located within the EU. That means that if the company’s headquarters are located outside of the European Union and there is a dispute, you are of course still free to hire a debt collection company. However, you will no longer be able to require that the debtor pay the debt collection fees.
The EU Directive provides a clear summary and explains how a business is allowed to operate, what they can do and what they should do. Clear regulations have been passed, “in order to discourage late payment”, as stated in the directive itself. The most important aspect of this directive is that it gives creditors the right to have the damage caused by the delay reimbursed, without having to result to court proceedings. It also sets a maximum payment deadline of 60 days. The stated goal is to ensure that unpaid invoices are paid more quickly.
If an invoice is not paid, you have access to professional help to collect on the debt. For example via the TIMOCOM debt collection service, who will help you to deal with unpaid invoices and act as a neutral intermediary when required. TIMOCOM legal expert Alexander Oebel comments: “In the large majority of cases, the issue is communication difficulties between parties that lead to misunderstandings.” A neutral intermediary can act as a mediator to solve disagreements and ensure that the two parties can continue to work together in the future.
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