A new ban on long payment terms

On 1 July 2017 a new law will go into effect that will put a ban on unreasonably long payment terms. The law intends to prevent large corporations from applying unreasonably long periods for paying invoices of small and medium sized suppliers (Small and Medium Enterprises or SMEs).

Current legislation

As a consequence of the implementation of EU Directive 2011/7/EU of 16 February 2011 on combating late payment in commercial transactions, Dutch law already stipulates that invoices must be paid within 30 days from their receipt.

For public authorities, state owned companies and non-profit organisations this is a rule of mandatory law. Commercial companies may agree on a longer payment term, although a payment term longer than 60 days is only allowed if this term is not  “overtly unfair” to the supplier. Relevant for determining whether a payment term is unfair are whether the purchaser has an objective and valid reason for applying a longer payment period, the nature of the transaction and relevant trade customs.

The new legislation

Despite the existing legislation, SME suppliers are often reluctant to object to the long payment terms applied by the large customers they depend on. This problem will be solved with the new legislation. As from 1 July 2017, any contract term with an SME supplier that provides for a payment term in excess of 60 days from the date of receipt of the invoice - or the date of delivery or acceptance of the goods or services – is void and automatically converted to a payment term of 30 days.

Since the statutory interest due in case of late payment of commercial transactions is rather high - as from 1 January 2017, 8% - this constitutes a severe penalty. Claims for statutory interest are statute barred after 5 years only.

A large corporation is any company that meets at least two of the following three criteria for two consecutive years:

1. a.   an asset value exceeding € 20 million;
2. b.   a net turnover exceeding € 40 million;
3. c.   an average number of employees of more than 250.

An SME supplier is any company that does not meet at least two of these criteria for two consecutive years.

Immediate effect

With effect from 1 July 2017, the new legislation applies immediately to all new agreements executed with SME suppliers. For agreements already existing on 1 July 2017, the parties have one year (until 1 July 2018) to amend these agreements without any sanction.

Our advice

Besides applying the rules of the new legislation to new agreements, we recommend checking your existing agreements on compliance with the legislation. For example, a clause stipulating that invoices will be paid at the end of the second calendar month following receipt of the invoice is most probably void, and will need to be amended.