Payment tracking and Late Payment Directive 2011/7/EU: how to avoid late payments
Late payments are among the most common problems for SMEs. We will go through the rules of the EU Late Payment Directive and the reminder process.
Late payments are among the most common problems for SMEs. The EU Late Payment Directive 2011/7/EU sets clear rules for payment terms and late payment interest. In this article, we will go through what the directive means in practice and how invoicing software helps in payment tracking.
Late Payments – A Problem for Small Businesses
According to the EU Commission, SMEs suffer the most from late payments. Money that should be in their account is tied up in the client's processes.
Consequences for a small business:
- Cash flow is disrupted – salaries, rents, and taxes still need to be paid on time
- Short-term financing has to be acquired unnecessarily
- Time is spent on making payment reminders and debt collection
- At worst, unpaid invoices lead to credit losses
Late Payment Directive 2011/7/EU: The Basic Idea
The EU Late Payment Directive (2011/7/EU) sets minimum requirements for payment periods and late payment interest across the EU. Key rules:
- Invoices between companies: payment terms may not exceed 60 days unless otherwise agreed and it is reasonable
- Public sector: payment terms are 30 days
- Late payment interest: at least the ECB's reference rate + 8 percentage points
- Compensation for recovery costs: the creditor is entitled to a minimum standard compensation of 40 euros for recovery costs
In Finland, the directive has been implemented into the Act on Payment Terms in Commercial Contracts (30/2013).
Reminder process: what to do when an invoice is late
An effective reminder process proceeds systematically:
- Due date +1 day: automatic payment reminder (polite)
- Due date +14 days: second reminder, mention of late payment interest
- Due date +30 days: third reminder, warning of debt collection action
- Due date +45 days: transfer to debt collection or legal action
Automatic payment reminders in invoicing software (such as Eemel Invoicing) ensure that no late invoice goes unnoticed.
Connection to sales ledger
For payment tracking, it is essential that the invoicing system and the sales ledger work together:
- Payments are automatically allocated to the correct invoices
- Open receivables are visible in real-time
- Late payment interest is calculated automatically
- Customer-specific payment history helps assess credit risk
Read more about the benefits of e-invoicing in our e-invoicing article.
Practical example: an advertising agency and long payment terms with large clients
A three-person advertising agency worked for large companies. Payment terms were 45–60 days. Cash flow was constantly tight.
Solution:
- Automatic payment reminders in Eemel Invoicing – reminders were sent after the due date without manual work
- Automatic calculation of late payment interest was shown in the reminders
- Open receivables were visible on one screen – no need to scroll through invoices separately
Result: the average payment period shortened from 47 days to 31 days within six months.
Try it in practice
Eemel Invoicing's automatic payment reminders and sales ledger keep cash flow under control.
Start for freeFrequently Asked Questions
What is the maximum allowed payment term between businesses?
According to the EU Late Payment Directive, 60 days, unless otherwise agreed and it is reasonable for the creditor.
How much is the late payment interest?
At least the ECB reference rate + 8 percentage points. In Finland, this is often around 11–12% in practice.
Can late payment interest be collected automatically?
Yes. Eemel Invoicing automatically calculates late payment interest and adds it to the payment reminder.
What does the 40 euro flat fee mean?
The creditor has the right to compensation of at least 40 euros for collection costs without separate proof of actual costs.
How does automatic payment reminder work?
The invoicing software monitors due dates and automatically sends a reminder when an invoice is overdue. You don't have to remember separately.
This article is general in nature and is not legal advice.