Short Reads

Act against unreasonably long payment effective as of 1 july 2017

Act against unreasonably long payment effective as of 1 july 2017

Act against unreasonably long payment effective as of 1 july 2017

29.07.2017

On 1 July 2017, the act against unreasonably long payment terms came into effect (the 'Act').

The Act aims to shorten payment terms throughout the supply chain and for SMEs in particular. In short, the Act prohibits large companies acting as purchasers from imposing payment terms of longer than  60 days on SMEs acting as suppliers (or service providers). It does so by providing that:

  • any payment term between a large company as purchaser and an SME as a supplier over 60 days is null and void and will automatically be converted into a 30 days payment term (art. 6:119a section 6 (new) DCC);
  • if a large company makes a payment after the 30 day payment term has lapsed, it owes statutory interest over the days its payment was overdue (from 30 days onwards); and
  • parties cannot waive their right to statutory interest.

What qualifies as a large company or an SME is defined in accordance with accounting laws (Section 10, Book 2 DCC). In short, SMEs are all companies that comply with two or three of the following criteria:

  • balance sheet total < € 20 million
  • net turnover < € 40 million
  • employees < 250

Large companies are all other companies.

As of 1 July 2017 all new agreements between large companies (as purchasers) and SMEs (as suppliers) have to comply with the Act. The Act will only apply to existing agreements after 1 July 2018 (art. 183b (new) Transition Act DCC).

The Act is enforced by SMEs themselves. If a large company imposes a payment term of over 60 days and refuses to pay statutory interest over the days its payment was overdue (from 30 days onwards), the SME can initiate civil proceedings. It has five years to file its claim. After five years the claim becomes time barred, unless of course the time limit was interrupted.

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