Fines up to €800,000 for Late Payment

The Spanish Late Payment Act (Ley de Morosidad, Act no 3/2004) came into force in December 2004. Almost thirteen years on, this legislation introducing measures to combat late payment in commercial transactions has yet to meet the objective for which it was created, namely:

Combatting the serious problem of late payments in commercial transactions.

The main reason this law remains unsuccessful is  its lack of means to enforce it. There are no other options besides suing the other party. Obviously, no one is going to file suit against clients simply because they did not pay within the agreed upon term of payment.

A solution to the lack of weaponry to combat late payments would be a long time request from a group of Spanish credit management associations. This request may finally be honoured. The process has now been initiated to amend legislation in such a manner that it will then have some clout when demanding that the buyer pay within the agreed term of payment.

Last month, the official gazette of the Spanish congress published a proposal for law no. 122/98 (proposición de ley), which is the initial step in the process of having a law passed. This is the second attempt, as the first proposal, published last year on October 7, has yet to be approved.

The most important amendments of proposed law no. 122/98 (proposición de ley)  are:

  • Certain conditions will be deemed null and void, even if agreed by seller and buyer. For example: payment terms longer than 60 days, payment terms excluding holidays, waiving of interest or collection costs;
  • Creating a late payment arbitration system (Sistema Arbitral de Morosidad);
  • Transparency of payment terms used by companies and administration (government);
  • Fines will be imposed by the government on companies ignoring the statutory or agreed upon payment terms:
    • Fines will range from 60 to 819,780 EURO depending on factors such as recidivism, number of days overdue, intention, frequency, previous warnings, size of the offender (SMB or multinational) and the economic dependence of seller on buyer and vice versa.