On April 1, 2014, the German cabinet agreed upon a draft bill that combines late payments in commercial transactions and sparks a culture of prompt payments in the B2B market to protect liquidity and ease financial management of undertakings.
Revisions to the German Civil Code
If the bill is adopted as proposed, businesses will face restrictions when agreeing upon payment terms and the duration of the acceptance procedure. The draft bill proposes that new provisions are added to the German Civil Code to regulate this.
Contractual clauses in B2B transactions between private entities that stipulate a period for payment in greater than 60 calendar days will be legally invalid unless explicitly agreed upon in the contract and only if it is not unfair to the creditor. The consequences of late payment are more severe with interest payment requirements and damages to apply after 60 calendar days.
In addition there is a supplemental, yet separate restriction: the parties of a B2B transaction are prevented from making a due date for remuneration to occur more than 30 days from the date that the goods or services are delivered. In this instance, similar to before, companies may make an exception if it is not grossly unfair (grob unbillig) to the creditor.
The proposed bill will prevent a circumvention of regulations that are seeking to spark timely payments.
Consequences for Businesses
If the draft bill is approved as proposed, buyers of goods and services will have to be able to prove they abided to the terms and conditions in event of a dispute. It is advised that businesses have sufficient documentation if they exceed the statutory limits, which may be difficult to abide by. Not only does a customer have to document why the longer payment terms aren’t grossly unfair but they also have to document that the counter-party accepts the late terms as not being grossly unfair.
The amendments to the BGB will also have an impact on existing long-term contractual relationships. However the amendments to the BGB will only apply to long-term contractual relationships where the performance triggers a remuneration claim that occurs after June 30, 2015.
Not only will the general terms and conditions for a B2B bill payment need to be revised, but also the previously agreed upon payment periods and acceptance procedures.