Spanish law against late payments in commercial transactions

The Law establishing measures to fight against late payments in commercial transactions (3/2004 Law of December 29th) represents the culmination of a legislative process developed to adapt the Spanish legislation to the content of the 2000/35/EC Directive and drastically reduce the payment terms in the commercial field.

This communitarian Directive, approved by the European Parliament and the Council on June 29th, 2000 after a series of communitarian initiatives on this matter, intends to establish common norms of legislative harmonization destined to fight against late payments in the European single market. Its content, applicable to the operations conducted between companies or companies and public authorities, is centred on determining payment terms with greater transparency and ensuring their effective fulfilment through a series of dissuasive measures.

Due to the importance of this new norm for countries like Spain where the problem of companies’ late payments is considerable, we analyze the new features that this law introduces in this field.

General Characterization of the New Law

The substantial measures included by the Law are the following:

• Determination of the payment term in the absence of a pact in this sense between the parties.
• Interests on late payment yielded at a specific point of time notification.
• Requirements for the demanding of interests on a late payment.
• The right to claim that the debtor compensates the collection costs.

Operations with the final consumer, payments conducted through checks, promissory notes and letters of change or to compensate for damages, and financial operations are left outside the scope of the Law. The debts related to insolvency procedures will also be governed by their special legislation.

Payment Terms

The absence of such legislation in the past had had the effect of expanding the average payment term to suppliers of Spanish companies up to 68 days.

Generally, the parties are free to establish payment terms. For want of such an agreement, it is regulated that the term will be 30 days from the invoice or delivery, whichever is the latest. The Law also establishes grounds to claim the nullity of abusive clauses.

The Law of Retail Commerce Arrangement that regulates the sales of the product to retailers for their supply to final consumers is modified in its dispositions on payment terms, establishing that the maximum payment postponements will be 30 days in the case of perishable and fresh food products and 60 days for other food and mass consumption products, although a transitory period is established until the 1 of July 2006 concerning these modifications, during which 90 days will be the maximum postponement. The government must duly detail all these products in three months.

Interests on Late Payment

Under the application of the new Law, if the seller has performed his obligations, the buyer’s failure to pay entails the yield of late payment interests, as of the date of its occurrence.

The type of interest will be that agreed between the parties or, in its absence, the European Central Bank’s interest applied to financing operations, published every six months in the BOE, plus seven per cent. Previously, in the absence of a pact, the late payment interests were the legal ones and were obtainable from the creditor’s claim.

Collection Costs

The indemnification of the collection costs represents an important novelty in the actions derived from non-payment, granting the creditor the right to demand compensation not superior to 15% of the debt, except for debts inferior to 30,000 euros, in which case its limit will be the debt itself.

Summary

As a conclusion, the new law improves the creditor’s position about the client.

Nevertheless, it is still not possible to determine what concrete effects it will have. The legal text itself anticipates that in two years the Government send a report to Congress, analyzing and evaluating the consequences of the application of the law.

In any case, the feeling is that many companies, especially SMEs, will contemplate the possibility of exercising legal actions for a breach of payment terms against great corporations and multinationals with distrust, due to the risk of losing potential transactions with these big firms.

For additional information regarding late payments in Spain,