Consequences of late payment according to the Supreme Court.

The Supreme Court establishes the consequences of late payment by ruling on the minimum amount to be charged for invoices paid after the deadline. The 4th Section of the Contentious Chamber of the SC establishes an interpretation of Art. 8 of the Late Payment Law. It ruled that creditors will have the right to collect 40 euros for each invoice paid late. It will be applicable to all debts related to the Administration.

In 2010, the law of Dilatoriness 15/2010, of July 15, 2010 is regulated. This law stipulates that the Public Administration must pay its invoices within a maximum period of 30 days.

This is relevant because according to the latest data, one out of four business closures is closely related to late payment.

For a better understanding of this resolution, we will first explain what are the different types of interests.

What is ordinary interest?

Ordinary interest is the interest established for financial transactions during the term of the contract. Generally from the subscription of the credit until its maturity, although the parties may agree on different periods.

That is, the sum that you have to pay when contracting a credit, which covers the cost of the borrowed money.

It is usually the lowest interest rate of all those established in a contract.

Si te ha interesado este artículo no dudes en leer:

The Three Keys to Debt Collection (and 5 other keys which you probably ignore)

Broadly speaking, the three keys to debts collections are: 1) Processes (many) 2) Experience (essential) and 3) Professionals (skilled and involved).

What is default interest?

Default interest is imposed on the debtor when there is non-compliance with the obligations on the agreed dates.

Therefore, they will replace the ordinary ones for the delay of the debtor of the accepted clauses.both interests will not be able to coexist in time. Thus, when the payment obligation is breached, ordinary interest becomes default interest.

Generally, default interest is at least two or three points higher than ordinary interest.

What is the late payment interest of the law against late payment, law 3/2004?

As we said at the beginning, one of the main problems of companies is late payment. Hundreds of thousands of legal proceedings are filed for non-payments.

Before law 3/2004, unless otherwise agreed, the defaulting party only had to pay the default interest of the LEC. This is 2 points more than the ordinary ones. Little punishment for the damage that non-payment, or even late payment, causes in commercial traffic.

For this reason, the law on late payment agreed that the default interest rate will be that of the ECB + eight points. This, of course, if the parties had not agreed on a different default interest rate in the contract.

Why is this ruling a novelty?

Article 8 of Law 3/2004, of December 29, 2004, establishes compensation for collection costs. What in banking products is called management costs. It stipulates that the debtor in default will have to pay the creditor a fixed amount of 40 euros for these costs.

Until now, this article had been interpreted in a certain way. It was understood that these 40 Euros covered the late collection management, being added to the amount of the debt. So that the final debt was composed of the principal amount + late payment interest + €40.

The novelty is that the SC has interpreted that the surcharge will be added to each of the delayed invoices. And not to the global amount.

The sentence establishes a minimum amount and an assured fixed amount of 40 euros that will operate as a floor. In addition, it will be automatic and it will not be necessary to remind it when the debtor is in arrears.

How does it benefit the creditor?

This new interpretation of the Supreme Court benefits the creditors by receiving a fixed amount of 40 euros for each delayed invoice. Thus, the default of their customers and their delay will affect them to a lesser extent. Especially when the debt is composed of many invoices of small amounts.

It also adds that the creditor will have the right to claim a higher compensation for the recovery costs incurred. Of course, when these are duly accredited, because let’s not forget that the 40€ are only the minimum amount.

It goes without saying that the debtor will not have to pay such compensation when he is not responsible for the delay in payment.

The judgment is not unanimous as it contains a single dissenting vote. It understands that this measure supposes an unjust enrichment for the creditor as it is a disproportionate cost for the Administration. They also consider that the automatism granted by the sentence is very favorable for the creditors.

And how does it harm debtors?

The automatic application of the floor may seriously harm debtors when the interest on late payments is very high. It will be necessary to add to the capital to pay, the interests of delinquency plus the minimum floor of 40 euros. That when we are in front of many invoices will be able to bring them a quite important damage.

In addition, it is necessary to emphasize that everything that we have been speaking about is framed within the contentious-administrative scope. That is to say, it will only take place when the client is the Administration and owes those amounts to a supplier. Therefore, for the time being this new interpretation will only be applicable in the contentious-administrative field. In no case, or at least for the time being, will this interpretation be possible in the civil field. The new interpretation will not be applicable until a ruling is issued in this area.

Conclusion

Debtors in arrears will have to pay 40 euros for each invoice paid after the due date.

All this will be effective in the contentious-administrative order and for the time being in no other.

The creditor will be able to claim, if he so wishes, a compensation for all the collection costs he has been suffering.

If this article has been of interest, we also suggest you to read the following article published on our website: The recent Supreme Court ruling regarding mortgage loan expenses