Question

Shlomi wishes to purchase a large quantity of
merchandise from Yitzi. Yitzi agrees to the sale, but wishes to
“encourage” Shlomi to pay on time at the end of the usual thirty-day
credit period. Would inclusion of a clause stipulating a fixed penalty for
each week of delay in payment be in breach of ribbis laws?

Answer

The Shulchan Oruch (Yoreh Deah 177:14)
rules that it is forbidden for the borrower to promise the lender that if
he fails to repay the loan on time he will pay back a fixed, predetermined
sum, which is more than what he borrowed, as a penalty for the delay. The
reason for this rabbinic prohibition is that this looks like a method of
circumventing ribbis laws (ha’aromas ribbis). Instead of
promising an additional percentage payment to the lender since he has to
wait for his money (which would constitute a Torah prohibition), he
disguises the additional payment in the form of a fixed penalty. However,
the Remo adds that if an enlarged delayed repayment is made in the
form of produce or other goods (and not money), this is permitted. In this
case the penalty for late payment does not resemble ribbis since it
is not made in the form of money. Not only is it actually a fine for
failure to repay on time, but it also bears no resemblance to ribbis.
Later, in Paragraph 16, the Shulchan Oruch rules that if the
borrower undertakes to add a fixed sum for each week of delay in
repayment, this is considered real ribbis, and not just ha’aromas
ribbis. The Shach (Note 30) explains that this is different
from the previous case in that the additional amount increases in
proportion to the length of the delay. This is real ribbis, since
the lender receives extra payment in according with the time he has to
wait for his money, which is the essence of ribbis (see Responsa of
the Rashbo, Vol. 1, No.651).

What is the law regarding increased payment for delay
in paying for goods, as opposed to a loan? The Shulchan Oruch
(Ibid.18) writes that it is permitted for a merchant who received advance
payment for goods which were to be delivered within half a year, to
promise that he will give him a predetermined larger amount of goods if he
fails to deliver on time (under certain conditions). Here there is no
problem of similarity to ribbis, explains the Shach (Note
38), since there is no loan, just a sale. Above, we have also quoted the Remo,
who states that even an enlarged repayment of a loan by means of goods
does not resemble ribbis and is permitted. We can therefore
conclude that imposing a fixed penalty for late delivery of goods or for
late payment for goods is not considered ha’aromas ribbis. Extra
money for money is forbidden; goods for money or money for goods is
permitted. However, the Halachic Authorities write that any sales contract
containing such a penalty clause must state clearly that any additional
payment is a fine for failure to pay for the goods on time and not for
late repayment of a loan. In addition, even those who permit a fixed
predetermined penalty for each week of delay in paying for goods
(the Taz, who argues with the Bach), insist that the
additional payment be calculated on the basis of the original sum, and not
compounded, since this would be ribbis (see Shulchan Oruch HaRav,
Laws of Ribbis, No.46 and Bris Yehudah, Chapter
4, Paragraphs 6-9).

We can therefore conclude that it is permitted for Yitzi to insert a
clause into the sales contract, imposing a fixed penalty for late payment.
Since the penalty is for delayed payment for goods, and not for a loan,
this does not look like ribbis.