It is possible to specify in the contract the application of penalties for late delivery if it does not meet the deadline.
This principle encourages the supplier to make delivery on the date contractually defined and represents a compensation for the buyer for damages suffered due to a delay in the execution of the contract.
In case of delay in delivery beyond a certain date to be determined, the buyer may cancel the order, or require the payment of financial compensation.
If bonds were involved (bank performance bonds for example), they can be called by the beneficiary because of the failure of the supplier.Are late delivey penalties a legal requirement?
Penalties for late delivery between professionals (B to B) are generally not defined by law (unlike the penalties for late payment) but by the agreement between the parties. If they are not specified in the contract, the buyer may not apply them to the defaulting partner.
This point should be discussed during the trade negotiations in which the conditions of application of penalties are specified (interest rate used, thresholds, calculation base ... etc..).
The minimum for the buyer is to get its general conditions of purchase signed by the supplier subject to the conditions of application of penalties are specified in this document.
Application of late penalties
This principle of compensation for the buyer in case of late delivery aims to be applied only to the products concerned by the delay.
There is in principle no question of applying to an entire order or contract if only one part was affected by a delay.
Beware of disputes, because if the calculation basis is not defined in the contract, the interests may differ between the buyer who wants to use a wide base of calculation (eg, the full amount of the contract) and the seller who wish to reduce it.Clauses to be included in contract :
- Triggering criteria penalties: from when they apply? For example on the day following the date of delivery.
- Basis of calculation: on what basis are they calculated? Is it only on late products or on a broader basis?
- Interest rate to use on the net amount of the calculation base.
- Is there a minimum or maximum threshold amount of penalties? If so which one?
How to get payment of late penalties?
When penalties are due and defined amount, the buyer can either:
- Issuing an invoice to the supplier stating the reasons they become due and detail calculation.
- Making a debit note which will impact the vendor account and will be deducted from future regulations of supplier invoices.