Dear Clients and Friends,
On March 30, 2017 (the "Commencement Date"), the Morality of Payments to Suppliers Law (the "Law") was enacted. The purpose of the Law is to determine the maximum periods for payments to be made to suppliers for the sale of goods, provision of services or performance of work. The Law, which dramatically changes the morality of payments to suppliers, applies, inter alia, to state authorities, government ministries, local authorities and all registered dealers with the VAT authorities.
The main points of the Law are as follows:
Maximum payment dates:
- State authorities, government ministries and the Israel Sports Betting Board shall pay on the basis of current terms + 30 (if the period is counted from the end of the month in which the invoice was issued) or within 45 days from the date on which the invoice was issued. With regard to contracts for engineering works, the consideration will be paid based upon current terms + 70 or within 85 days from the date on which the invoice was issued.
- A body established by law, a publicly financed institution of higher education or a body financed by the State (except for certain bodies) shall pay to the supplier on the basis of current terms + 45, unless a different date for payment is explicitly agreed to by the parties in the contract and this date is determined in light of the special nature of the contract and is not exceptionally unfair (and subject to reporting of such payment terms to the Israel Small and Medium Enterprises Authority).
- A local authority shall pay the supplier based upon current terms + 45. If the transaction involves engineering works, payment shall be made on the basis of current terms + 80. If the entire or party of the transaction is financed by means of external financing (from the state or an entity financed by the state), then the local authority may postpone the date of payment of the part which has been financed until after receiving the external financing (but no later than 150 days from the date on which the invoice was issued to the local authority).
- A business (including a licensed dealer, an exempted dealer and a financial institution) shall pay to the supplier based upon current terms + 45, unless a different date for payment is explicitly agreed to by the parties in the contract and this date is determined in light of the special nature of the engagement or is not exceptionally unfair. The Law determines that the payment to the supplier will be paid under the conditions specified above, subject to the supplier providing the orderer with an invoice that includes all the material details and/or fulfills all the material conditions for receipt of the consideration, according to the contract between the parties.
Interest and linkage differences:
Any unpaid consideration up to the last date for the payment of the invoice (as detailed above), shall be paid to the supplier with the addition of linkage differentials and interest, and if 30 days have passed from such date - plus arrears of interest.
With regard to the contract between a business, a publicly financed institution of higher education or a body financed by the state (except for certain entities such as a local authority or a state authority) or another entity established by law, and a supplier, the application of the Law with regard to linkage differences and interest will only be made in cases in which the entity or dealer, as the case may be, has priority in formulating the terms of the contract.
This does not derogate from the right of a supplier to any other remedy to which he is entitled by law for failure to pay the consideration on time.
Condition in favor of supplier:
The provisions of the Law should not be subject to a condition except if it is in favor of the supplier.
Coming into force of the Law:
- The Law will come into force within 3 months from the Commencement Date and with regard to engagements by State authorities, government ministries, the Israel Sports Betting Board, the National Lottery and local authorities – within 4 months from the Commencement Date.
- The Law will apply to any contract signed on the Commencement Date and thereafter (and with regard to engagements by state authorities, government ministries, the Israel Sports Betting Board, the National Lottery and local authorities – commencing from the date which applies to them from the commencement date onwards).
Should you have any questions or require any clarification regarding the above, please do not hesitate to contact us.
Herzog Fox & Neeman
