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The distribution of the debt payment between principal and interest often depends on the terms of the debt agreement. However, unless the parties have agreed otherwise, payments received by the creditor from the debtor shall be distributed in the following order:

first of all, to reimburse the costs incurred by the creditor in connection with the declaration of the demand for the fulfillment of the obligation;

in the second order, installments are allocated to pay interest according to the order of their payment terms;

in the third row, contributions are allocated to pay arrears (arrears, fines);

in the fourth row, installments are allocated to cover the principal debt.

If the parties have not agreed on the payment distribution procedure in the contract, the creditor has the right to refuse to accept the payment offered by the debtor, if the debtor specifies a different payment distribution. Thus, if the debtor, when making payments to the creditor, indicates in the purpose of payments which amounts are allocated to the main debt and which amounts to cover interest and defaults, this does not prevent the creditor from distributing the payments received from the creditor in accordance with the procedure established by law, i.e. first of all, set off expenses, interest (due for payment) and only then the main debt.

Fines and late fees are a sanction for improperly executed contract, unpaid obligation. Late interest is usually calculated when the debt is not paid on time, and a fine can be imposed both for missing the deadline and for other violations of the terms of the contract.

The amount of late interest is determined by the agreement of the parties, and can be calculated for each day, week, month, etc. of the deadline being missed. i.e.

The fine can be determined by law, contract and court. A specific amount of money or a percentage (of the amount).

It should be noted that late interest is calculated from the contract price without VAT.

The law stipulates that a six-month statute of limitations applies to the collection of interest and fines, i.e. the creditor has the right to demand that the debtor pay late interest for 6 months. period until the date of filing the claim.

If the creditor and the debtor agree on the debt payment terms in the contract, it is considered that interest on late payment starts to be calculated from the next day of the fixed term.

If the parties do not agree on the deadline, the provisions of the law shall apply. Default interest starts to be calculated when the debtor does not fulfill the obligation or fulfills it incorrectly. Missing the deadline is also considered improper performance. The law also establishes that if the deadline for fulfilling the obligation is not set, the creditor has the right to demand its fulfillment at any time, and the debtor has the right to fulfill it at any time. If the deadline for payment has not been determined, the debtor must pay within seven days of the creditor’s demand (unless, according to the law or the essence of the contract, a different deadline for the fulfillment of the obligation is clear. In such cases, conditions must be created for the debtor to properly fulfill the obligation). Thus, in this case, the calculation of late payment interest starts seven days after the creditor’s demand or another reasonable deadline.

It should be noted that special laws may determine other starting points for late payment interest. For example, due to arrears related to labor relations.
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The interest agreed upon by the parties or compensatory interest in the amount stipulated by the law may be applied to the missed payment period.

The amount of interest is defined in the Civil Code of the Republic of Lithuania. The creditor can demand compensatory 5 percent annual interest on the amount to be paid by the missed deadline, and if both parties to the contract are entrepreneurs, then 6 percent annual interest is paid for the missed deadline.

In the business sector, the Law on the Prevention of Delay in Payments of the Republic of Lithuania, made under commercial contracts, may be applied for missed payment terms under commercial contracts (transferred goods, rendered services and completed works). According to this law, the late payment interest rate is 8 percent (the fixed interest rate applied to the latest main refinancing operation of the European Central Bank has been increased by 8 percentage points).

Higher amounts of compensatory interest than those established by law may be applied when the parties agree on it, but such an agreement by the parties must not contradict the law, the principles of fairness and reasonableness. Otherwise, the court has the right to reduce excessive contractual interest. Whether an agreed interest rate is fair and reasonable depends on individual circumstances in each case.

The creditor may demand compensatory interest or liquidated damages from the borrower, whichever is greater, which means that compensatory interest, liquidated damages, and other losses, whichever is greater, would be offset against each other.

The Law of the Republic of Lithuania on the Prevention of Delay in Payments Made Under Commercial Contracts provides that payments for goods or services must be made within 30 days at the latest. According to the mentioned law, the payment term is calculated:

1) within 30 calendar days from the day when the buyer of goods, recipient of services or client of works receives an invoice or an equivalent document;

2) if the date of receipt of the invoice or an equivalent document is unclear, within 30 calendar days from the date of receipt of goods, provision of services or performance of works.

3) within 30 calendar days from the date of receipt of goods, provision of services or completion of work, when the invoice is submitted to the customer before the delivered goods, rendered services or completed works;

4) if the acceptance or inspection procedure is established in the laws or commercial contract – within 30 calendar days from the day of acceptance or inspection of the goods, services or works.

In a commercial contract, the maximum payment period can be set up to 60 calendar days from the date of receipt of goods, provision of services or performance of works. If the period exceeds 60 calendar days, such a clause of the commercial contract is considered invalid and payments for goods sold, services rendered and work performed must be made within 30 calendar days.