The EU Late Payment Directive: Your Right to Charge Interest on Overdue Invoices

Directive 2011/7/EU on combating late payment in commercial transactions is an EU law that protects businesses from late-paying clients. It applies to all commercial transactions between businesses (B2B) and between businesses and public authorities (B2G) across the EU.

The Directive gives you three automatic rights when a client pays late: the right to charge interest, the right to claim a minimum €40 in compensation, and the right to recover additional collection costs. These rights arise without the necessity of a reminder — they are triggered simply by the payment being late.

The Directive has been transposed into national law in every EU Member State. While the implementation details vary slightly, the core protections are consistent across the EU.

Under Article 3, interest for late payment becomes due from the day following the payment due date. The due date is either:

The date specified on the invoice or in the contract. If your invoice says "due within 30 days" and the client does not pay by day 30, interest starts accruing on day 31.

If no due date is fixed: 30 days after the date of receipt of the invoice, or 30 days after receipt of the goods or services (whichever is later).

The default maximum contractual payment period for B2B transactions is 60 calendar days. However, under Article 3(5), parties can expressly agree to a longer period provided it is not grossly unfair to the creditor. Payment terms exceeding 60 days require explicit contractual agreement and must not be grossly unfair to the creditor (Article 3(5), subject to Article 7).

Article 2(6) defines the statutory interest rate as the ECB reference rate plus at least 8 percentage points. For non-euro Member States, the national central bank rate plus 8 percentage points applies.

Under Article 3(2), the reference rate is determined semi-annually: the rate as of 1 January applies for the first half of the year, and the rate as of 1 July applies for the second half.

Article 6 entitles you to a minimum fixed sum of €40 for each late payment, without needing to send a reminder or prove any actual costs. This covers the administrative cost of chasing payment.

The CJEU has clarified that this €40 is payable per invoice, not per contract. In BFF Finance Iberia (C-585/20), X sp. z o.o. (C-419/21), DOMUS-SOFTWARE (C-370/21), and ALD Automotive (C-78/22), the Court consistently ruled that where a contract involves periodic payments, the €40 is payable for each late payment.

Beyond the €40, Article 6(3) allows you to claim reasonable compensation for recovery costs exceeding that amount, including legal fees and collection agency costs.

Article 7 addresses unfair contractual terms. Under Article 7(1), a term that is grossly unfair to the creditor is either unenforceable or gives rise to a claim for damages. Article 7(2) treats a term excluding the right to interest as grossly unfair (irrebuttable — the term is unenforceable or gives rise to a claim for damages under Article 7(1)). Article 7(3) treats a term excluding the right to compensation as presumed to be grossly unfair (rebuttable by the debtor). Your client cannot contractually waive your late payment rights.

When your client is a public authority (government agencies, municipalities, public institutions), Article 4 imposes stricter rules. The maximum payment period is 30 calendar days from invoice receipt.

This can be extended to 60 days in two specific situations. Under Article 4(4), Member States may extend the payment period up to 60 days for public undertakings carrying out economic activities of an industrial or commercial nature and for healthcare entities. Separately, Article 4(6) permits an extension up to 60 days for any public authority contract where the extension is expressly agreed and objectively justified by the particular nature of the contract.

The CJEU found in Commission v Italy (C-122/18) that systematic late payments by Italian public authorities constituted a breach of the Directive. This ruling reinforces that the 30-day rule is binding, not aspirational.

Late payment interest is outside the scope of VAT. It is not consideration for a supply of goods or services — it is compensatory damages for the debtor's failure to pay on time.

The general principle that payments in the nature of damages or compensation (as opposed to consideration for a supply) fall outside the scope of VAT is well-established in CJEU case law. Article 73 of the VAT Directive includes only consideration obtained "in return for the supply" — default interest arises from a breach of payment obligation, not from a supply.

The €40 flat-rate compensation is similarly outside VAT scope.

However, per BFF Finance Iberia (C-585/20), the base on which late payment interest is calculated must include the VAT portion of the original invoice. Interest accrues on the gross amount your client owes you, not just the net amount.

While you are entitled to interest and compensation regardless of whether you mention it on the invoice, including a late payment clause is good practice. It sets expectations and reduces disputes.

A typical clause for EU cross-border invoices:

The European Commission proposed upgrading the Late Payment Directive to a directly applicable Regulation (COM(2023) 533). Key proposed changes:

A maximum 30-day payment term for all B2B transactions (European Parliament amendments allow extension to 60 days if expressly agreed). The codification of the per-invoice €40 compensation principle. The establishment of national enforcement bodies and a European Payment Observatory. Introduction of mediation systems for payment disputes. Repeal of the current Directive 2011/7/EU.

The European Parliament adopted its first-reading position on 23 April 2024, significantly amending the Commission's original text. As of February 2026, this remains a proposal only — the Council of the EU has not reached a general approach and the file is effectively stalled. If eventually adopted, the Regulation would be directly applicable in all Member States without national transposition, but its final form and timeline remain uncertain.