Interest rate on late business payments decreased to 11.15%

The interest rate in the event of late payment in commercial transactions has decreased to 11.15 per cent as from 1st January 2025.

This marks a significant decrease from the 12.25 per cent rate established on 1st July 2024, itself lower than the record high of 12.5 per cent set 12 months ago.

The increase comes after the European Central Bank (ECB) decreased its reference rate.

The Malta Association of Credit Management (MACM), a non-profit organisation for the promotion and protection of all credit interest pertaining to Maltese businesses, shared the news with its members.

As per a European Directive that was transposed in Maltese law in 2012, suppliers of goods and services have the right to charge interest on late payment equivalent to eight per cent (a rate that is unchanged since the introduction of the law) plus the ECB reference rate.

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.

In comments made to BusinessNow.mt in 2023, MACM Director General Josef Busuttil explained that the interest rate for late payments in B2B transactions is updated twice every year, in January and July.

“Late payment remain a big problem in Europe, and in Malta no less so,” he said. “Late payments are wasted, idle money that cannot be used, costing the receiving company timely cash flow and preventing it from investing it, paying wages, or other productive uses.”

Mr Busuttil said that the interest rate was always meant to be a deterrent by providing suppliers with a legal mechanism to take timely action.

He added that all a business needs to do to make use of the mechanism is to send an updated invoice.

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.

The MACM, which is a member of the Federation of European Credit Management Associations (FECMA), also reminded Maltese businesses that it can provide Know Your Customer (KYC), due diligence and international credit rating reports.