Some minor changes to the UK late payment rules applicable to commercial transactions come into effect on 16 March 2013.
This Update provides an overview at the current late payment rules, and then summarises the changes implemented by The Late Payment of Commercial Debts Regulations 2013 (the 2013 Regulations) (Note 1).
The Late Payment of Commercial Debts (Interest) Act 1998 (Note 2) applies to all business to business contracts for the supply of goods or services, and provides that:
- A customer must pay statutory interest on the debt from the agreed date for payment, currently set at 8% above the Bank of England base rate. If no date for payment has been agreed, interest is payable from the date falling 30 days after the date of performance or date of the invoice.
- The parties can agree a different late payment interest rate, provided that the alternative rate constitutes a “substantial remedy” for the supplier. When considering whether the interest rate constitutes a “substantial remedy”, the courts will consider not only the rate itself but also the bargaining positions of the parties and any industry standards.
- A debtor can also claim fixed compensation for its recovery costs of between £40 and £100, depending on the size of the debt.
What is changing?
The 2013 Regulations make the following changes for contracts made on or after 16 March 2013:
- Except where the purchaser is a public authority, any agreed date for payment must not exceed 60 days, unless (i) a longer period has been expressly agreed and (ii) that period is not “grossly unfair” to the supplier. When considering whether a longer period is “grossly unfair”, all the circumstances are taken into account, including “anything that is a gross deviation from good commercial practice and fair dealing”, the nature of the goods and services in question; and whether the purchaser has any “objective reason” to deviate from the default 30 day limit.
- Where the purchaser is a public authority, any agreed date for payment must not exceed 30 days.
- The period for a purchaser to confirm that the goods or services conform to the contract must not exceed 30 days, unless (i) a longer period has been expressly agreed and (ii) that period is not “grossly unfair” to the supplier.
- If the supplier’s “reasonable costs” in recovering the debt exceeds the fixed compensation, then the supplier can also recover the excess.
(c) 2013 MACS Legal