Late-payment interest and unpaid invoices

When does late-payment interest start to run?

Interest runs from the moment the obligation fell due until it is properly performed (VÕS § 113 lg 1) [1]. Unless the contract provides otherwise, the creditor may demand performance once the due date or the period for performance has passed (VÕS § 82 lg 7) [4].

If no due date or payment period was agreed in a reciprocal contract, the payment falls due at the latest 30 days after the invoice or a similar payment request reached the debtor (VÕS § 82¹ lg 1 p 1) [5], and interest runs from that time (VÕS § 113 lg 2) [1]. In other cases where the time of payment is not fixed, for example a claim for damages, interest runs from when the creditor notified the debtor of the claim or filed an action or an application for an expedited payment order (VÕS § 113 lg 2) [1].

A debtor who concluded the contract in the course of business or professional activity may not rely on an agreed payment term longer than 60 days from receipt of the invoice or another event listed in VÕS § 82¹ lg 1 p 1–3, unless the contract expressly provides otherwise and this is not grossly unfair to the creditor in the circumstances (VÕS § 82¹ lg 2) [5]. If the debtor is a person referred to in § 5 lg 2 of the Public Procurement Act, an agreed payment term longer than 60 days is void (VÕS § 82¹ lg 4) [5].

The debtor does not have to pay late-payment interest for the time during which it could not perform because the creditor delayed accepting performance, or during which it lawfully refused to perform its obligation (VÕS § 113 lg 4) [1].

How high is late-payment interest?

The interest rate under VÕS § 94 is, for each half-year, the most recent interest rate applied by the European Central Bank to its main refinancing operations before 1 January and 1 July of each year (VÕS § 94 lg 1) [6]; Eesti Pank arranges its timely publication in Ametlikud Teadaanded (VÕS § 94 lg 2) [6]. Eight per cent per year is added to it (VÕS § 113 lg 1) [1]. For a long delay it is therefore worth checking the rate for each half-year separately. If the damage caused by the delay exceeds the late-payment interest, compensation for the damage exceeding it may be claimed if there is a claim for damages (VÕS § 113 lg 5) [1].

If the contract provides for a higher interest rate than the statutory late-payment rate, the contractual interest rate is the late-payment rate (VÕS § 113 lg 1) [1]. According to the Supreme Court, VÕS § 113 lg 1 also allows the parties to agree on a late-payment rate higher than the statutory one; however, late-payment interest is compensation calculated as a percentage of the amount owed, and a charge for each day of delay agreed in a residential lease, which did not depend on the amount of unpaid rent, was an agreement on a contractual penalty, which is void in a residential lease (RK 2-15-8794/42) [7]. Under a consumer credit agreement, however, late-payment interest higher than the rate laid down in VÕS § 113 lg 1 may not be claimed from the consumer for late payments (VÕS § 415 lg 1) [8].

The law also sets limits:

• No interest on interest. Late-payment interest may not be charged for late payment of interest, including late-payment interest; an agreement to the debtor's detriment is void (VÕS § 113 lg 6) [1]. According to the Supreme Court, this ban cannot be artificially avoided, for example by extending the payment term; the parties may, however, agree on interest (not late-payment interest) on interest and late-payment interest that have fallen due (RK 3-2-1-175-14) [9]. The ban does not limit the right to claim compensation for damage caused by late payment of interest (VÕS § 113 lg 7) [1].
• Reduction. A person obliged to pay late-payment interest may ask for it to be reduced under VÕS § 162 (VÕS § 113 lg 8) [1]: a court may reduce an unreasonably large amount to a reasonable one, but a reduction cannot be requested after payment (VÕS § 162 lg 1 and 3) [10].
• Business debtor. A debtor acting in a business or professional capacity may not rely on an agreement restricting the right to late-payment interest if it is grossly unfair to the creditor in the circumstances (VÕS § 113 lg 9) [1]; an agreement excluding late-payment interest from such a debtor is void (VÕS § 113 lg 10) [1].

Can you charge for reminders and debt collection?

Business debtor. If the creditor may claim late-payment interest, it may claim compensation for debt-collection costs of 40 euros (VÕS § 113¹ lg 1) [2]. This does not apply to a consumer debtor (VÕS § 113¹ lg 4) [2].

Consumer debtor, where the creditor acts in a business or professional capacity (VÕS § 113²) [3]:

• while the contract is in force, for each obligation that has fallen due, a fee of up to 5 euros may be charged for one reminder letter only, and only if at least one free reminder was sent to the consumer first; the amount increases by 5 euros for each joint and several debtor or provider of security (VÕS § 113² lg 1) [3];
• after the contract has ended, up to 30 euros in total if the claim is up to 500 euros, up to 40 euros if the claim is over 500 euros and up to 1000 euros, and up to 50 euros if the claim is over 1000 euros; for the first paid reminder letter up to 15, 20 or 25 euros respectively and up to 5 euros for each of the next two letters, plus the same for each joint and several debtor or provider of security (VÕS § 113² lg 2) [3];
• after the contract has ended, the first paid reminder letter may be sent no earlier than seven days after the contract ended, and the second and third no earlier than seven days after the previous letter was sent (VÕS § 113² lg 3) [3];
• damage above these amounts may be claimed only in exceptional circumstances, in particular where the collection steps were exceptionally complex (VÕS § 113² lg 4) [3];
• an agreement to the consumer's detriment is void (VÕS § 113² lg 6) [3].

How do you recover the debt through the courts?

A claim for a specific sum of money arising from a private-law relationship is decided by the court on application in expedited payment order proceedings (TsMS § 481 lg 1) [11]; these are not available if the claim, including principal and ancillary claims, exceeds 8000 euros (TsMS § 481 lg 2²) [11]. They do not cover ancillary claims, such as late-payment interest, to the extent that these exceed the principal claim (TsMS § 481 lg 2¹) [11]. They do not apply to a claim under a consumer contract if the late-payment rate agreed with the consumer exceeds three times the statutory rate (TsMS § 481 lg 2³ p 2) [11]. From 01.01.2027, when a claim under a consumer credit agreement is dealt with in expedited payment order proceedings, the creditor may claim only repayment of the principal of the credit granted to the consumer together with interest at the rate laid down in VÕS § 94 lg 1 or late-payment interest at the rate laid down in the second sentence of VÕS § 113 lg 1, if these are not higher than the interest or late-payment rate agreed earlier (TsMS § 481 lg 2⁴) [12].

The application must show the principal and ancillary claims separately and, where late-payment interest is claimed, its rate and the period for which it is calculated (TsMS § 482 lg 1 p 3) [13]. From 01.01.2027, for a claim under a consumer credit agreement the application must say so, give a detailed overview of the drawdown of the credit and of the payments under the agreement and a comparative calculation of all the consumer's payments towards principal, interest and late-payment interest, attach the agreement on which the claim is based, including the payment schedule, and state the annual percentage rate of charge (TsMS § 482 lg 1¹) [14]. The state fee is three per cent of the claim, but not less than 65 euros (RLS § 59 lg 6) [15]. In an action, late-payment interest may be claimed so that the court awards it as a fixed sum up to the judgment and thereafter as a percentage of the principal claim (TsMS § 367) [16].

The limitation period for a claim arising from a transaction is three years (TsÜS § 146 lg 1) [17]; for a claim for agreed payment it starts at the end of the year in which the claim fell due (TsÜS § 147 lg 3) [18]. Limitation is interrupted and starts again if the debtor acknowledges the claim, for example by paying part of it (TsÜS § 158 lg 1 and 2) [19].

What the law says

• „Rahalise kohustuse täitmisega viivitamise korral võib võlausaldaja nõuda võlgnikult viivitusintressi (viivis), arvates kohustuse sissenõutavaks muutumisest kuni kohase täitmiseni.“ [1] (translation: in the event of delay in performing a monetary obligation, the creditor may claim late-payment interest from the debtor from the moment the obligation falls due until it is properly performed; VÕS § 113 lg 1) – the right to interest follows from the law.
• „Viivise määraks loetakse käesoleva seaduse §-s 94 sätestatud intressimäär, millele lisandub kaheksa protsenti aastas.“ [1] (translation: the late-payment rate is the interest rate set out in § 94 of this Act plus eight per cent per year; VÕS § 113 lg 1) – this is the statutory annual rate.
• „Viivist ei ole lubatud nõuda intressi, sealhulgas viivise, ega muu raha kasutamise tasu maksmisega viivitamise korral.“ [1] (translation: late-payment interest may not be charged for late payment of interest, including late-payment interest, or of any other charge for the use of money; VÕS § 113 lg 6) – no interest on accrued interest.
• „Kui võlausaldaja võib nõuda viivist, võib ta nõuda võlgnikult võla sissenõudmiskulude hüvitamist summas 40 eurot.“ [2] (translation: if the creditor may claim late-payment interest, it may claim compensation for debt-collection costs of 40 euros from the debtor; VÕS § 113¹ lg 1) – this applies to a business debtor.

What to do

1. Find the due date in the contract or invoice; if there is none, the payment falls due at the latest 30 days after the invoice reached the debtor (VÕS § 82¹ lg 1 p 1) [5].
2. Calculate interest on the amount owed from the due date until payment (VÕS § 113 lg 1) [1], using the rate for each half-year (VÕS § 94 lg 1) [6], and do not charge interest on interest (VÕS § 113 lg 6) [1].
3. Send a reminder and give a reasonable additional period for payment (VÕS § 114 lg 1) [20]; during that period you may claim late-payment interest (VÕS § 114 lg 3) [20]. Send a consumer at least one free reminder before a paid one (VÕS § 113² lg 1) [3].
4. Claim the 40-euro debt-collection fee from a business debtor (VÕS § 113¹ lg 1) [2].
5. If the debt is still unpaid, apply for an expedited payment order for a claim of up to 8000 euros (TsMS § 481 lg 2²) [11]; for a larger claim, file an action.
6. Keep an eye on the limitation period (TsÜS § 146 lg 1; TsÜS § 147 lg 3) [17] [18].

Frequently asked questions

Does the contract need a late-interest clause?

No. In the event of delay in paying money, the creditor may claim late-payment interest under the law (VÕS § 113 lg 1; VÕS § 101 lg 1 p 6) [1] [21].

Can the 40-euro fee be charged to a private individual?

Not if they are a consumer: VÕS § 113¹ does not apply to a consumer debtor (VÕS § 113¹ lg 4) [2]. Collection costs may be claimed from a consumer only within the limits of VÕS § 113² (VÕS § 113² lg 1 and 2) [3].

What does a partial payment cover first?

If, in addition to the principal monetary obligation, the debtor must pay costs and interest, the payment is deemed to cover first the costs, then interest that has already fallen due, and finally the principal obligation (VÕS § 88 lg 8) [22]. The debtor may not set a different order without the creditor's consent (VÕS § 88 lg 9) [22]. Under a consumer credit agreement the order is different: if a payment the consumer made under the agreement is not enough to perform all obligations that have fallen due, it is applied first to the costs of collecting the debt, second to the principal owed, third to interest and fourth to other obligations (VÕS § 415 lg 2) [8]; this does not apply if the consumer pays under an enforcement instrument drawn up for recovering interest as the principal claim (VÕS § 415 lg 3) [8]. From 01.01.2027, when a claim under a consumer credit agreement is dealt with in expedited payment order proceedings, all payments the consumer made in that obligation are applied first to the principal debt, second to interest and third to late-payment interest, to the extent laid down in TsMS § 481 lg 2⁴ (TsMS § 481 lg 2⁵) [12]; in that case the order laid down in VÕS § 415 lg 2 does not apply (VÕS § 415 lg 2¹) [23].

What if the agreed late-payment interest is very high?

The person obliged to pay it may ask for it to be reduced (VÕS § 113 lg 8) [1]; a court may reduce an unreasonably large amount to a reasonable one (VÕS § 162 lg 1) [10].