25 April 2013 by Matthew Miller

Paying your dues…

The Late Payment of Commercial Debts Regulations 2013 came into force on 16 March 2013. In an attempt to protect smaller suppliers from cash flow problems, the new Regulations encourage the prompt payment of invoices by introducing new time limits for payments. However, a number of commentators feel the Regulations do not go far enough to protect small businesses.

1. Business-to-business contracts

As before, if a contract does not include any payment terms, payment is due within 30 calendar days of the customer receiving the relevant invoice or the goods or services, or verifying/accepting the goods or services, whichever is the later.

If the contract contains express payment terms, the parties can agree a payment period of up to 60 days from the date of invoice, receipt of the goods/services or verification/acceptance. However, any extension beyond 60 days must be in writing and cannot be “grossly unfair” i.e. a gross deviation from good practice and contrary to good faith/fair dealing, taking into account (a) the goods/services in question and (b) whether the buyer has reason to extend the period.

So while a contractual term excluding the right to claim interest will be grossly unfair, it seems there is still scope for ‘larger’ purchasers of goods/services to exploit their bargaining position, and act ‘unfairly’ as long as they are not being “grossly unfair” to their suppliers.

2. Business-to-public authority contracts

If such a contract contains no payment terms, payment is required within 30 calendar days of the relevant date (as above). If a contract with a public authority does contain payment terms, the supplier’s invoices must be paid within 30 days of the relevant date (as above). This period cannot be extended.

The Regulations do not change the statutory rate of interest applicable to late payments, which remains at 8% over the Bank of England base rate. Parties can contract out of this statutory rate but the resulting interest rate must still be a “substantial remedy” for late payment.

Suppliers can claim a fixed charge for recovering the relevant debt (this varies depending on the size of the debt), as previously, and they can also now claim any other reasonable costs of recovery e.g. fees paid to a debt recovery agency.

In light of the new Regulations, customers should review any standard purchase terms – if they include a payment period exceeding 60 days, the customer will be required to show it is not “grossly unfair”. Suppliers should also update their standard terms of business accordingly.

For further information and/or advice on your standard terms of business, please contact Matthew Miller on 020 7288 4739 or at matthewmiller@boltburdon.co.uk.

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