Late payment clauses: what happens when they do not pay on time

Late payment is one of the most common problems freelancers and small businesses face. A good contract includes clear payment terms and meaningful consequences for late payment. A bad contract leaves you chasing invoices with no leverage.

What a good late payment clause includes

Payment terms should specify when payment is due (net 14, net 30, net 60), what triggers the payment obligation (delivery, acceptance, invoice date), and what happens if payment is late (interest, suspension of work, termination right).

Interest on late payments

In the EU, the Late Payment Directive (2011/7/EU) gives businesses the right to charge interest on late payments at the ECB reference rate plus 8 percentage points. This applies even if the contract does not mention interest. Many businesses do not know this right exists.

The 40 euro recovery fee

The EU Late Payment Directive also entitles you to a fixed 40 euro compensation for recovery costs for each late invoice. Again, this applies automatically — you do not need a contract clause for it.

Suspension and termination rights

A strong contract gives you the right to suspend work if payment is overdue by more than a specified period (typically 14-30 days) and to terminate the contract if payment remains outstanding. Without these rights, you may be contractually obliged to keep working while not being paid.

What to negotiate

Push for net 14 or net 30 payment terms rather than net 60 or net 90. Include a right to suspend work for non-payment. Specify that IP and deliverables do not transfer until full payment is received. Include the EU statutory interest rate by reference.