By agreeing a payment period, contractual parties determine at what time the payment obligation must be fulfilled. Agreements on payment periods are relevant in particular for contracts on the delivery of goods or the rendering of services, where the seller or the service provider makes advance deliveries, for instance by delivering goods on account.
Within certain bounds, defined for instance by the laws on terms and conditions and the principle of good faith, the contractual freedom previously allowed the parties to determine their own payment period. Directive 2011/7/EU on Combating Late Payment in Business Transactions (“Late Payments Directive”) was issued to counteract an abusive implementation of overlong payment periods by economically strong players or the public sector and to improve the liquidity, competitiveness, and profitability of companies.
The German legislator now has, albeit belatedly, implemented the Late Payment Directive in German law. In this Legal Update we have summarized the new rules.