Many companies and other economic entities recently face problems with late payments and, as a consequence, problems in retrieving debt payments. Because of the economic crisis some companies and other economic entities are not able to fulfill their obligations on commercial transactions and make remuneration for the goods or services received.
There are some aspects that should be taken into account while retrieving the debt payments. First of all, it should be noted that interest on obligations may be fixed by law or agreement of the parties. In the event where the interest is established by laws, the parties may agree in writing upon a higher interest providing that such agreement is not contrary to the laws or the principles of good faith and reasonableness. Non-observance of the written form shall be grounds for the application of the interest established by laws. The law (Civil code) defines the size of interest: In case a debtor fails to meet his monetary obligation when it falls due, he shall be bound to pay an interest at the rate of five percent per annum, upon the sum of money subject to the non-performed obligation unless any other rate of interest has been established by the law or contract. Where both parties are businessmen or private legal persons, the interest at the rate of six percent per annum, shall be payable for a delay in payment unless any other rate of interest has been established by the law or contract.
Dealing with private entities while facing the problems of the late payments, the "Law on the prevention of the late payment in commercial transactions" should be taken into account. This mentioned law, in order to prevent late payments, defines an even higher interest rate and applies it to all payments made as remuneration for commercial transactions concluded between the economic entities or between economic entities and public authorities which lead to the delivery of goods, provision of services or performance of work for remuneration, and in which payments are made.
The calculation of the interest rate according to this law is calculated on the monthly VILIBOR interest rate (average interbank offered rate, at which banks are willing to lend funds, in litas, to other banks), increased by 7 percentage points. At the moment the monthly VILIBOR interest rate is 3.17 percent, accordingly the interest rate for late payment should be 10.17 percent and it might be a strong incentive to avoid late payments by the possible debtor. Where the debt arises from commercial transactions concluded between economic entities, or between economic entities and public authorities, it should be stressed that the creditor may choose the base for calculating the interest rate, based either on the Civil code, i.e. a fixed 6 percent interest rate, or from the above-mentioned law on the prevention of late payments.
By Marius Matiukas, Associate Lawyer
ECOVIS MiÅ¡kinis, Kvainauskas ir partneriai advokatÅ³ kontora