Invoices are indispensable in the business world. They are proof of the services or products delivered and also form the basis for payment. But what happens if an invoice is not paid on time? What is the legal payment term and how can a company respond to it?
What is the payment term?
The payment term is the period within which an invoice must be paid. This is often indicated in days, for example, 30 days after the invoice date. It is an important agreement between a seller and buyer about when payment for delivered goods or services should take place.
It plays a significant role in ensuring a company’s liquidity. Liquidity refers to the level at which a company is able to meet its short-term obligations with its available cash. A shorter payment term ensures that a company can access the money more quickly and cover costs, thereby improving its liquidity position.
Additionally, the payment term also affects a company’s cash flow. Cash flow describes the inflow and outflow of money within a company. A longer payment term can lead to delays in payments, making it more difficult for a company to meet its financial obligations. It is therefore important for companies to agree on a clear and achievable payment term.
What is a legal payment term?
If no payment term is agreed upon between two parties, the ‘legal payment term’ applies. The legal payment term is 30 days.
It is also legally established that a payment term may not exceed 60 days. By exception, this period may be longer than 60 days. It must then be proven that there are no disadvantages for the buyer and seller. This is the result of European rules aimed at combating payment delays in business transactions.
Can I also apply a shorter payment term?
There is no legal minimum for a payment term; you can always apply a shorter payment term than the legal payment term. This term must be agreed upon with the customer and must not be unreasonably short. This means so short that both parties suffer disadvantages from it.
The different legal payment terms
The legal payment terms vary depending on the debtor receiving the invoice.
Legal payment term for consumers
There are no specific legal payment terms for consumers. As an entrepreneur, you may determine this payment term yourself, as long as it is a reasonable term. This term is stated in the contract or the general terms and conditions.
Legal payment term for freelancers and companies
For agreements between companies, the rules of the European Directive on combating late payment apply. The maximum payment term is 60 days. A term longer than 60 days is only allowed if there are no disadvantages for both parties. If no term is agreed upon, the standard term is 30 days.
Legal payment term for large companies
Large companies must pay invoices from SMEs and self-employed entrepreneurs within 30 days. An SME is described as: “fewer than 250 employees, an annual turnover of no more than €40 million, or an annual balance sheet total of less than or equal to €20 million.” (ondernemersplein.kvk.nl) A large company is “more than 250 FTEs employed (multiple employees can fulfill 1 FTE) or a net turnover of more than €50 million and a balance sheet total of more than €43 million.” (rvo.nl)
Legal payment term for the government
Governments must pay invoices within 30 days, except when they can extend this term to 60 days in rare cases. Governments include municipalities, provinces, and national governments. The national government applies the general purchasing and delivery conditions.
