The proposed EU Late Payment Regulation, introduced by the European Commission in September 2023, was never enacted into law: the European Parliament adopted its position in April 2024, but a blocking minority of member states opposed the draft, and the Commission subsequently signalled its intention to withdraw the proposal. The existing legal framework therefore remains Directive 2011/7/EU, which continues to govern late payment interest, flat-rate compensation, and maximum payment terms across the EU. For businesses pursuing unpaid invoices or seeking to enforce payment obligations cross-border, understanding what changed, what was rejected, and what practical tools remain is essential.
The Architecture of Directive 2011/7/EU: What Has Always Been There
Directive 2011/7/EU, which replaced the earlier 2000/35/EC framework, established a minimum harmonisation floor applicable to commercial transactions across all EU member states. Its three core provisions are well-known but frequently misapplied in practice:
- Statutory late payment interest: creditors are entitled to interest at the European Central Bank's reference rate plus 8 percentage points, calculated from the day following the agreed or statutory payment deadline.
- Flat-rate compensation: a minimum of EUR 40 per invoice is due automatically upon the debtor falling into arrears, without any requirement to prove actual costs.
- Payment terms: in business-to-business transactions, payment periods may be extended beyond 30 days by contractual agreement, subject to a ceiling of 60 days unless the terms are not grossly unfair to the creditor – a notably elastic standard.
Despite being transposed across all member states, the Directive's practical bite has been uneven. Enforcement remains a matter of national procedural law, and the "grossly unfair" test for extended payment terms has been interpreted inconsistently. Some jurisdictions permit sector-wide derogations; others apply the ceiling strictly. The result is a patchwork that sophisticated debtors have learned to navigate.
If you are assessing whether existing contractual terms adequately protect your business's right to late payment interest, our guide on claiming late payment interest under EU law sets out the procedural steps in practical terms.
The Proposed Regulation: Ambition, Opposition and Collapse
The European Commission's proposal of September 2023 was ambitious in ways that ultimately proved politically fatal. Rather than amending the existing Directive, the Commission proposed a directly applicable Regulation – a deliberate choice intended to eliminate the transposition gaps and divergences that had undermined Directive 2011/7/EU. The key structural changes envisaged included a mandatory 30-day payment term across all B2B transactions with very limited exceptions, automatic enforceability of interest without requiring a creditor demand, and enhanced supervisory and enforcement powers at national level.
The Parliament adopted its position in April 2024, introducing modifications but broadly endorsing the Commission's approach. The blocking minority of member states that emerged in the Council represented sectors and economies with established practices of extended payment terms – particularly in manufacturing supply chains and certain Southern and Eastern European markets. The practical concern was that a rigid 30-day mandatory cap would disrupt working capital arrangements that businesses had built over decades, without providing adequate transitional mechanisms.
With the Commission signalling withdrawal, the proposal is best described as blocked and abandoned. It does not form part of the applicable legal framework, and businesses should not rely on it as though it created any enforceable rights or obligations.
Open Legal Questions Left Unresolved
The failed Regulation leaves several interpretive tensions within Directive 2011/7/EU unaddressed. These are not merely academic: they arise regularly in cross-border debt collection disputes and before national courts.
- The "grossly unfair" threshold: Neither the Court of Justice of the European Union (CJEU) nor the Commission has produced clear guidance on how this standard applies across different sectors or transaction sizes. National courts have reached differing conclusions, and the CJEU's case law, while informative, does not resolve every permutation.
- Public authority transactions: Directive 2011/7/EU applies stricter rules to transactions involving public authorities, but the boundary between a public authority and a state-owned commercial entity remains contested in several member states.
- Contractual modifications below the EUR 40 floor: Some standard-form contracts purport to limit or waive the flat-rate compensation. Whether such clauses are enforceable under the "grossly unfair" doctrine is, again, subject to national interpretation.
- Currency of the ECB reference rate: The reference rate adjusts semi-annually. Creditors who accept delayed payment without issuing a formal demand may lose the benefit of rate changes that occurred after the debt fell due, depending on how the contract specifies interest accrual.
These unresolved questions matter most in enforcement proceedings. A creditor pursuing a payment order in one member state and then seeking to enforce a judgment in another encounters not only these interpretive gaps but also the procedural divergences between national enforcement regimes.
Cross-Border Implications: Enforcement in Practice
For international businesses, the practical challenge is rarely the existence of a right to late payment interest or flat-rate compensation – it is converting that right into an enforceable claim across borders. The EU provides several procedural instruments that survive the failure of the Regulation and operate alongside Directive 2011/7/EU.
The European Order for Payment procedure allows creditors to obtain a payment order in uncontested cross-border claims, which is then enforceable across member states without the need for a separate declaration of enforceability in the enforcing jurisdiction. However, this instrument requires careful attention to service requirements and the debtor's opportunity to oppose. Once a debtor files a statement of opposition, the matter reverts to ordinary national proceedings.
Asset freezing under the European Account Preservation Order (EAPO) regulation provides a pre-judgment tool to prevent debtors from dissipating funds pending litigation. The threshold for obtaining an EAPO, and the standards courts apply when assessing urgency and risk of asset dissipation, vary in their application even where the formal legal text is uniform. Practitioners should not assume that a successful EAPO application in one jurisdiction will be straightforwardly mirrored in another.
Enforcement of judgment remains the most friction-heavy stage. Even within the EU's Brussels I Recast framework, the practical steps required to enforce an unpaid invoice judgment against a debtor with assets in multiple jurisdictions involve local procedure, local bailiffs, and local rules on exempt assets. The failure of the Regulation means no new harmonisation of enforcement mechanisms is forthcoming in the near term.
Our dedicated practice page on debt recovery in France illustrates how these cross-border enforcement steps work in a specific major jurisdiction, including the interaction between EU procedural instruments and national enforcement law.
Strategic Recommendations for Creditors and Investors
Given that the legal framework remains Directive 2011/7/EU and no harmonising Regulation is forthcoming, businesses with significant cross-border receivables exposure should consider the following strategic adjustments:
- Contractual architecture: Do not rely on statutory defaults. Explicitly incorporate late payment interest at the ECB reference rate plus 8 percentage points, reference the EUR 40 flat-rate compensation, and address the currency and frequency of interest accrual. Courts are more willing to enforce express contractual provisions than to infer them.
- Payment term negotiation: The 60-day ceiling under Directive 2011/7/EU applies unless terms are not grossly unfair. For large counterparties with significant bargaining power, documenting the commercial justification for any extended terms reduces the risk of those terms being challenged at a later stage.
- Choice of law and jurisdiction: In B2B contracts, the choice of a governing law and a dispute resolution forum has material consequences for enforcement speed and cost. Some member states provide significantly faster payment order procedures than others. This choice should be made deliberately, not by default.
- Monitoring debtor financial health: Early identification of a counterparty's financial distress is critical. The window between a debtor becoming insolvent and the opening of formal insolvency proceedings is precisely the period in which asset preservation orders have the greatest value. Delayed action frequently results in creditors joining an unsecured pool.
- Regulatory engagement: The European Commission's withdrawal of the Regulation does not mean the policy question is closed. Future legislative cycles may revisit mandatory payment terms, particularly if the current Commission identifies late payment as a barrier to the Capital Markets Union or the Single Market strategy. Businesses with policy exposure should monitor EUR-Lex and Commission consultation processes.
Where a debtor is approaching or has entered insolvency, the interplay between late payment claims and restructuring or bankruptcy proceedings adds significant complexity. An unsecured late payment claim ranks well below secured creditors in most member state insolvency hierarchies. Our practice on bankruptcy and restructuring addresses how creditors can best protect their position when a debtor's solvency is in question.
If your business is assessing its exposure under current EU late payment rules or evaluating its enforcement strategy across multiple member states, the team at Ferraz & Whitmore is available to assist. You are welcome to reach us at info@ferrazwhitmore.com or through our contacts page.
The Regulatory Outlook: What Comes Next
The abandonment of the 2023 Regulation proposal represents a substantive political setback for harmonisation in this area, but it does not preclude future action. The Commission retains the ability to bring forward a revised proposal in a new legislative term, potentially with a narrower scope or longer transition periods designed to address the concerns of the blocking minority. The European Parliament's April 2024 position, although without legislative effect, sets a marker for what the Parliament's committees are willing to support.
Supervisory bodies including the European Banking Authority and the European Securities and Markets Authority have peripheral but relevant interests in this space: late payment patterns affect bank credit quality, supply chain finance structures, and market integrity in sectors where receivables are securitised or used as collateral. Their analytical outputs and risk assessments may influence how future Commission proposals frame the problem.
In the interim, creditors, funders, and investors should operate on the assumption that Directive 2011/7/EU in its current form, with all its national implementation divergences and interpretive gaps, will remain the governing framework for the foreseeable future. Planning for that reality – rather than anticipating a harmonising Regulation that has not arrived – is the prudent course.
To discuss how the current late payment framework affects your cross-border commercial or investment arrangements, contact the Ferraz & Whitmore team at info@ferrazwhitmore.com or visit our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.