Introduction to Late Payment Penalties on Unpaid Invoices
At any time, a business may face a payment delay. Fortunately, in case of unpaid invoices within the agreed deadlines, a supplier can claim late payment penalties from their customer. In this article, we will help you better understand all of this. To start, what are the payment deadlines between professionals or between a professional and an individual? Must late payment penalties be shown on invoices? How to request payment of late penalties from your customer? How to calculate late payment penalties on unpaid invoices? What is the rate of late payment penalties applicable if no rate is set beforehand? The entire Flexina team tells you more in these few lines. Follow the guide and happy reading!
Payment Deadlines | Important Reminder
Between professionals, payment deadlines are 30 days from the invoice date.
However, an additional payment deadline of 30 days, or 60 days from the invoice date, is possible with the consent of both parties. An additional deadline may be possible but must remain reasonable.
Regarding administrations, the deadline must be related to public contracts but for small amounts, the payment deadline can be applied as for B2B.
Between a professional and an individual, as a general rule, invoice payment is made:
- upon receipt of the invoice (deadline set to maximum 7 days);
- upon receipt of goods;
- upon completion of the service.
However, if an individual or professional deviates from this rule, i.e., from the agreed payment deadline, the company has the right to claim late payment penalties from their customer.
The late payment penalty rate must appear on invoices
The late payment penalty rate must imperatively appear on the invoices and the company's terms and conditions. Indeed, if this information does not appear on invoices, the company risks an administrative sanction.
How to request payment of late payment penalties?
The company does not necessarily have to make a reminder or even issue a formal notice, because late payment penalties apply automatically. Indeed, legally, the company is therefore not obligated to claim late payment penalties from a customer.
Attention: late payment penalties constitute a taxable product and they are not subject to VAT.
How to calculate late payment penalties?
Of course, the creditor issues invoices with VAT. However, penalties must be calculated on the amount including tax. We provide here the calculation method to evaluate late payment penalties:
- [(rate x amount including tax)] x [number of late days/365].
Let's take an example for a sum of €1000 for 30 days with a rate of 2%:
- 1000 X 2% = 20
- 30/365 = 0.082
- 0.082 x 30 = €2.46 interest.
The legal rate for the second half of 2019 (July to December 2019) in case of payment delay in commercial transactions amounts to 8% and in other cases to 2%.
Given that the penalty rate appears on the invoice and its calculation method is specified in the terms and conditions, it is up to the customer to calculate the late payment penalties themselves. As mentioned previously, penalties are not subject to VAT.
What to do if no rate is set?
If the terms and conditions have not set a rate, the law has provided a single rate. This is equal to the semi-annual refinancing rate of the ECB (European Central Bank). The refinancing rate is updated every semester. It is therefore useful to remember the rate on January 1st or July 1st of the current year.
To your keyboards: late payment penalties on unpaid invoices are an important element that cannot be taken lightly by the company. And you, have you ever faced a customer who had not settled an invoice within the agreed deadlines? Feel free to come share your experiences and impressions in the comments. Don't forget to come test our online invoicing software for free for 15 days. Do you have questions, need tips or want a free demonstration of our software? You can contact us at any time. We will respond to you as soon as possible.
