ECB rate pull-back drives knock-on effect on interest rate for late commercial payments

The interest rate in the event of late payment in commercial transactions has decreased to 12.25 per cent as from 1st July 2024.

The rate was previously set at 12.5 per cent – the highest ever – with the latest update reflecting the European Central Bank’s decision in June to cut its core interest rates.

The change was announced by the Malta Association of Credit Management (MACM), a non-profit organisation for the promotion and protection of all credit interest pertaining to Maltese businesses.

The applicable late payment interest rate applies from the day following the end of the term agreed in the contract of sale.

When the payment terms are not specified in the contract of sale, the supplier of goods and services (the creditor) is entitled to interest on late payment following 30 calendar days from the date of receipt of goods or services, or 30 days from the date of invoice.

Interest accrues daily.

Late payments remain a major issue for European and Maltese businesses, leading to cash flow issues that may lead to insolvency.

The EU's Late Payment Directive is currently being revised, and may see the introduction of a number of new measures including mandatory term limits for payments in a bid to counter the unequal power relationship between buyers and sellers.

Other conditions relating to the interest chargeable for late payment in commercial transactions are:

• The period for payment agreed by the parties in the contract of sale may not exceed 60 calendar days. However, the parties may expressly agree for a longer period as long as the extension of time is not grossly unfair to the supplier of goods and services (creditor).
• The supplier of goods and services (creditor) may proceed with the claim for late payment against the client (debtor) without reminding the client (debtor) that the amount is due.
• In the case of transactions between undertakings and public authorities, the period for payment shall be 30 calendar days if not expressly agreed in the contract and may not exceed 60 calendar days if fixed in the contract.
• However, in case the client (debtor) is a public authority which carries out economic activities of an industrial or commercial nature and if the public authority provides health care, and the payment period is not expressly fixed in the contract, the payment period shall not exceed 60 calendar days.
• Agreement between the supplier of goods and services (creditor) and client (debtor) to extend the date of receipt of invoice is null and void.
• In addition to the interest charges on late payment, the supplier of goods and services (creditor) is entitled to reasonable compensation for the supplier’s own recovery costs at a minimum of €40.
• When the contract of sale provides for the retention of title between the seller and the buyer, the seller is entitled to retain title over the goods until the price has been paid in full by the buyer.