The Law on Combating Late Payment in Commercial Transactions

Ah, finally. As of today, everything will be better, especially payment practices in business transactions. Because today the Law on Combating Late Payment in Commercial Transactions has come into effect. Non-lawyers are unlikely to ever encounter this law in their everyday lives, and even most lawyers will probably never even see it. Ultimately, it only provides regulations that certain other rules (mainly in the German Civil Code (BGB)) are subject to change.

First of all, these amended rules include the provisions relating to interest on late payments, Section 288 of the German Commercial Code (BGB), as long as it involves B2B transactions. Until now, companies had to pay each other late interest at the rate of 8% above the base interest rate. As of today, this has been increased to 9%. Payment practices themselves probably won’t improve, but at least the creditors can now be paid a little better for late payments. In addition, in the future, defaulting companies and public customers will have to pay an additional 40 euro fee to the creditor on top of the late interest rate according to Section 288 Para. 5 of the BGB.

Two additional limitations on general terms and conditions have newly been added to the BGB:
(a) the new Section 308 No. 1a of the German Civil Code (BGB) now prohibits companies from including a term of payment of more than 30 days in their T&Cs;
(b) also new is Section 308 No. 1b, which prohibits companies from reserving the right to meet their own payment obligations only after careful review if the company granted itself this kind of careful review for a period of more than 15 days in its T&Cs.

The Law on Combating Late Payment in Commercial Transactions will, of course, not solve the problem of ever-deteriorating payment practices. The problem of massive defaults in B2C transactions is not discussed at all, and we can safely say the effectiveness of the regulations for B2B transactions is dubious. When outstanding payments in B2B transactions go unpaid, the purchaser is usually either broke or simply has the market power to get away with such behavior.

If the purchaser is broke, creditors are usually lucky if they get any money at all. They couldn’t care less whether they are then entitled to 9% late payment interest instead of 8% (on paper anyway) because they will only actually receive this in the rarest of cases.
For large companies for whom late payment is part of the business model, creditors will voluntarily waive interest claims. Anyone taken on by Aldi, Media Markt and Co. as a supplier is completely unlikely to bother such an important client about invoices being paid too late incurring a 9% interest rate.

So the stricter regulations will probably mainly be brought to bear in those cases where companies are disputing the reasonable justification of an invoice. In these sorts of cases, we lawyers will actually then argue for a 9% late payment interest rate instead of the previous 8% during claims proceedings. That surely raises the question as to whether it really still has anything to do with combating poor payment practices if creditors of disputed claims can argue in favor of higher interest rates in court. But it’s fine by me: we mainly represent the creditor’s side of things, so our clients tend to benefit more from these changes than be disadvantaged by them.