Interest on late payments arising from commercial transactions also accrues interest: the Supreme Court confirms the principle of ‘compound interest’ in Law 3/2004

When a company receives late payment for a commercial transaction, the loss is not limited to the time spent waiting. The cost of late payment may be higher than anticipated: late payment interest under Law 3/2004 of 29 December on measures to combat late payment in commercial transactions (“Law 3/2004”) not only compensates for the delay but may, in turn, generate statutory interest in accordance with Article 1109 of the Civil Code. This accumulation, known as compound interest, significantly increases the amount that may ultimately be claimed.

Supreme Court Judgment 513/2026 of 7 April, handed down by the Civil Chamber of the Supreme Court, confirms that both mechanisms are compatible. The ruling, which relates to a road maintenance contract entered into with a public authority, consolidates the legal principle established in Supreme Court Judgment 103/2021 of 25 February and provides guidance of particular interest to companies, contractors and creditors facing late payments.

Compound interest and late payment: two complementary concepts

The Civil Code establishes a general rule: interest that has fallen due may, in turn, generate statutory interest from the moment it is claimed in court, even if the debt has not been settled. The aim is to compensate the creditor for the period during which they are deprived of both the principal amount and the interest already accrued. In other words, unpaid interest can become a new basis for calculation when payment is claimed in court.

For its part, Act 3/2004 protects creditors against late payments in commercial transactions. Unless otherwise agreed, it sets default interest at a rate equivalent to the European Central Bank’s rate in its most recent refinancing operation plus eight percentage points. Furthermore, this interest accrues automatically upon mere failure to meet the deadline, without the need for prior notice or a formal demand.

The issue brought before the Supreme Court was whether the specific provisions of Law 3/2004 precluded the application of Article 1109 of the Civil Code. The answer has a direct bearing on the quantification of claims: sector-specific default interest and compound interest serve different purposes and are not mutually exclusive. Law 3/2004 determines when default arises and which rate applies; the Civil Code allows statutory interest to be calculated on overdue interest once a legal claim has been brought.

Supreme Court Judgment 513/2026: confirmation of the Supreme Court’s doctrine

The dispute pitted two members of a joint venture against the Public Works Agency of the Regional Government of Andalusia. The contract concerned various road maintenance works in the province of Cádiz. The public authority fell behind with payments of the sums due, leading the contractors to claim the default interest provided for in Law 3/2004, in addition to sums linked to certain factoring agreements.

At first instance, the court upheld the claim in its entirety and ordered payment of €208,229.16, plus statutory interest. The Provincial Court of Seville upheld most of the ruling, but excluded compound interest on late payment interest under Article 7.2 of Law 3/2004. The companies lodged an appeal on points of law, arguing that this exclusion contravened Article 1109 of the Civil Code and the case law already established by the First Chamber.

The Civil Chamber upheld the appeal and set aside the exclusion agreed upon at the appeal stage. In upholding the judgment at first instance, Supreme Court Judgment 513/2026 recognises that Law 3/2004 is compatible with statutory interest on late payment interest. Consequently, the creditor may claim the late payment interest accrued as a result of the delay and, from the date of the legal claim, the corresponding statutory interest on those amounts due.

The decision reiterates and confirms the reasoning set out in Supreme Court Judgment 103/2021 of 25 February. Firstly, Act 3/2004 does not contain an express exclusion of compound interest. Secondly, its status as a special provision only supersedes the rules of the Civil Code where there is incompatibility, which is not apparent in this case. Thirdly, denying compound interest would undermine the aim of combating and deterring late payment, as it would make the delay financially advantageous for the debtor. Finally, the ruling is consistent with the case law of the Contentious-Administrative Chamber regarding interest on late payment against public authorities.

Practical implications for businesses and creditors

What does this mean in practice? It means that if your company or business is paid late for an invoice arising from a commercial transaction, you can claim two things at the same time: (1) the interest on late payment set out in Law 3/2004 for the delay in payment, and (2) interest on that interest (what is legally termed ‘compound interest’) from the moment the claim is filed. These are distinct but cumulative concepts: the first compensates you for not being paid on time; the second compensates you for having had to wait for a court to rule before you could collect what was already owed to you.

For creditors (that is, those awaiting payment), this ruling is very good news. The key is to prepare the claim thoroughly: check the due dates of the invoices, verify which payments have been received, and calculate the total amount of accrued late-payment interest. If everything is properly documented, it is possible to claim not only the interest for the delay, but also the additional interest that accrues from the moment the claim is filed. For debtors (those who owe money), the message is clear: the cost of late payment is not limited to the interest rate set out in Law 3/2004, because the debt may continue to grow once the creditor takes the matter to court. And this also applies to debts owed by public authorities to companies and contractors.

In short, Law 3/2004 neither limits nor supersedes the creditor’s right to compound interest. The legislation, designed to penalise late payment, cannot, paradoxically, become a benefit for the debtor who fails to meet their obligations.

For all these reasons, if your company is a creditor in a commercial transaction, it is essential to be aware of this route to claiming the full amount owed: both the interest on arrears due to late payment and the additional interest accrued from the date the claim was filed. Every day of delay increases the debt cumulatively, which significantly strengthens the creditor’s position in the claim.