1. Are there any specific legal requirements in respect to payment terms?
Yes, Germany has implemented legislation based on EU Directive 2011/7/EU on combating late payments in commercial transactions. Regarding payment provisions in standard terms and conditions, the German legislation even goes beyond the common EU legal framework by imposing additional restrictions.
2. Is there a standard payment term set out in law? If so, what is it?
According to German statutory law, a payment is always due immediately if the parties have not agreed to specific deviating payment terms.
However, regardless of this immediate due date, the legislator grants the debtor an extension before the debtor is in default. According to this statutory rule, provided no deviating payment terms are specified, the debtor is in default (i) after receiving a reminder of the creditor or (ii) at the latest (even without any reminder) if the debtor does not perform the payment within 30 days of the due date.
3. In what circumstances may parties contractually agree to extend payment beyond the standard payment term?
- In individually negotiated contracts, parties are generally free to agree to payment terms of up to 60 days from the receipt of the invoice. A longer payment term is only valid if the parties expressly agree to it and if this extended payment term is not grossly unfair to the creditor. When assessing if a longer payment term is grossly unfair, a court will take into account (i) any gross deviations from good commercial practice, (ii) the nature of the goods or services provided and (iii) whether the debtor has a substantial reason for exceeding the maximum payment term provided by law (i.e. 60 days).
- If the payment terms are included or the provision itself is considered "standard terms" (i.e. they are part of standard contracts or provisions, which are used in several cases in identical wording), the strict rules on standard contracts under German law apply. In a standard contract provided by the debtor, a payment term of more than 30 days from the receipt of the invoice is deemed unreasonably long and, therefore, invalid unless the debtor has substantial reasons that justify longer payment terms. Even a payment term of less than 30 days may, under special circumstances, be deemed invalid if it imposes an unreasonable disadvantage to the other party.
4. May an obligation beyond the standard payment term be evidenced in a PO?
Yes, provided, of course, that the other party does not reject the PO and/or the payment terms.
Even a simple reference of the recipient of the PO to its own Ts+Cs (which provide for payment terms), such as in the order confirmation, could be sufficient to reject the PO's payment terms. The specifics of each case depend on the laws on Battle of Forms (see our CMS Expert Guide to the Battle of the Forms).
The same applies vice versa if the seller's documents (e.g. a commercial offer for its products or services) contain payment terms and the buyer's PO or its standard terms contain deviating provisions on payment terms.
If the standard payment terms of either party are rejected, German statutory law will apply.
5. Are there any penalties for breach of payment term in legislation other that a civil claim by the seller?
Not really. However, if a payment term is deemed invalid, the statutory provisions apply, hence the payment is due immediately and the debtor will be in default. The creditor would be entitled to statutory interest at the rate of nine percent above basic interest (see the last column for details). In addition, the creditor may be entitled to claim reimbursement of its lawyer's fees for requesting payment from the debtor.
6. Is there any special legislation regarding payment obligations for the COVID-19 situation?
Yes, there is special legislation regarding payment terms in order to mitigate the negative consequences of the COVID 19 pandemic for consumers and businesses.
According to this law, consumers and small businesses (i.e. with less than ten employees and up to EUR 2 million annual turnover) are entitled to temporarily refuse fulfilling certain continuing contractual obligations until 30 June 2020 (e.g. monthly payments) if (i) the contract was concluded before 8 March 2020 and (ii) the fulfilment of the obligation would endanger the economic basis or the livelihood of the respective consumer or small business due to the COVID-19 pandemic. This means that if the conditions are met, the debtor will not be in default until 30 June 2020 if the debtor does not fulfil its payment obligations.
There is additional legislation regarding the suspension of payment obligations of monthly rent for consumers and businesses, which applies to all businesses (regardless of the number of employees and annual turnover). For details, please see information of our CMS Real Estate Group.
According to German statutory law, the creditor is entitled to default interest at a rate of nine percentage points above the basic interest rate without the need to provide any documentation. If the debtor is a consumer, the rate is reduced to five percentage points above the basic interest rate. The basic interest rate is the reference rate of interest for the most recent main financing operation of the European Central Bank.