Payment terms for companies and private individuals
Invoices are indispensable in business. They are proof of the services or products provided and are also the basis for payment. But what happens if an invoice is not paid on time? What is the legal payment term, and how can you respond to it as a business? We list the most important aspects surrounding the legal payment term for you.
What is a legal payment term?
A legal payment term is the period within which the recipient of an invoice is obliged to pay it. This term is set by law and applies to all invoices sent.
As a company, it is very important to be aware of the legal payment term. This way, you take timely action if an invoice is not paid on time and avoid getting into financial trouble. Moreover, knowing the legal payment term ensures clarity and transparency towards your customers.
Are you a business that receives or pays with cash? Then you are obliged to keep a cash book.
Can I also use a shorter payment term?
There is no legal minimum to a payment term, you may always use a shorter payment term than the legal payment term. However, this term must be agreed with the client and must not be unreasonably short.
The different legal payment terms
Legal payment terms differ according to the type of relationship between the invoicing party and the recipient of the invoice.
Statutory payment term for consumers
Unless you agree a payment date, the customer must pay you within 30 days. This payment date is listed in the contract or general terms and conditions.
Statutory payment term for companies
Contracts between companies are subject to the rules of the European Directive on combating late payment. The maximum payment period is 60 days, unless otherwise agreed in the contract. A period longer than 60 days is only allowed if there are no disadvantages for both parties. If no term has been agreed, the standard term is 30 days.
Legal payment deadline for large companies
Large companies must pay invoices from SMEs and self-employed entrepreneurs within 30 days. A term longer than 30 days is possible only if there are no disadvantages for both parties. Determining a company’s SME status is based on the number of employees and financial results.
Legal payment term for public authorities
Governments must pay invoices within 30 days, except when they can extend this period to 60 days in rare cases. The central government uses the General Conditions of Purchase and Delivery.
Your invoice is not paid
If your invoice is not paid on time, you respond to this through payment reminders and dunning letters. In addition, you may decide to use a collection agency or start legal proceedings.
The main aspects surrounding the statutory payment term in a nutshell
- A legal payment term is the term within which the recipient of an invoice is obliged to pay it
- Companies should be aware of the legal payment term in order to take timely action in case of non-payment
- Companies can apply a shorter payment term, if it has been agreed with the customer and is not unreasonably short
- There is no legal payment term for consumers
- Legal payment term for companies 30 days, large companies 60 days and government 60 days
- If an invoice is not paid on time, as a business you take action through reminders, dunning letters, using a collection agency or starting legal proceedings
As a company, it is important to be aware of the legal payment term so that you take timely action in case of non-payment of invoices. In doing so, it is also possible to agree a shorter payment period with the customer, if it is not unreasonably short. It is wise to regularly monitor whether invoices are paid on time, so that you take timely action. By working with a software solution, such as automated accounts receivable management from Payt, you carry out these processes even more efficiently and quickly. Want to know more about how Payt works? Feel free to contact us, we will be happy to help.
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