Articles | Do your contracts comply with the new rules on late payment?

The Late Payment of Commercial Debts Regulations 2013 apply to all contracts entered into on or after 16 March 2013.  Cathrine Ripley offers a timely reminder to review your payment terms.

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Cathrine Ripley

Cathrine Ripley

The aim of the new Regulations is to encourage prompt payment of invoices - a perennial problem for small suppliers suffering cashflow problems, particularly so in the current economic climate.

Time limits for payment

There are new time limits for payment, depending on who you are contracting with:

  • Public authorities: 30 days unless the contract stipulates a shorter period for payment.  This period runs from the later of the date of the invoice or the receipt, acceptance (or, where the contract provides for it, verification) of the goods or services. 
  • Private businesses: 30 days unless the contract contains an express clause on payment.   Any express clause may allow up to 60 days from the later of the date of the invoice or receipt, acceptance (or, where the contract provides for it, verification) of the goods or services.  

It is possible to agree more than 60 days provided the agreement is in writing and such terms are not “grossly unfair”.

“Grossly unfair” means anything which, in the circumstances, is a gross deviation from good commercial practice and contrary to good faith and fair dealing.  As this is a new concept under English law it will be interesting to see how the courts apply this in practice. 

What if payment is late?

Under the Regulations the creditor can charge:

  • interest at a rate of 8% over the Bank of England base rate (or such other rate as is agreed);
  • a fixed compensation charge of £40, £70 or £100 depending on the size of the outstanding debt; and
  • any other reasonable recovery costs incurred. 

What should I do about this?

We recommend that:

  • you review your standard terms of sale and purchase to see whether any amendments are needed;
  • when reviewing any new contracts, you keep a look out for any terms which may fall foul of the new rules. 

If you have any questions or would like any advice on this area please do not hesitate to contact Cathrine Ripley.