Late payment of commercial debts
On 16 March 2013, the Late Payment of Commercial Debts Regulations 2013 (“Regulations”) came into force. These amend the provisions of the Late Payment of Commercial Debts (Interest) Act 1998 (“Act”) and apply to commercial contracts for the supply of goods or services made on, or after, 16 March 2013.
What has changed?
The Regulations provide that interest on outstanding payments under commercial contracts will start to run after certain time periods.
- Public authorities – interest will start to run on outstanding payments from 30 days after the supplier’s invoice is received, the goods or services are received, or the goods or services are verified and accepted (whichever is the later).
- Businesses – if the contract does not specify the time for payment, interest will start to run on outstanding payments from 30 days after the supplier’s invoice is received, the goods or services are received, or the goods or services are verified and accepted (whichever is the later).
The parties to the contract can agree a due date for payment of up to 60 days after any of the events listed above, and provided the extension is not “grossly unfair” to the supplier, they can further extend beyond that.
The regulations also require purchasers to verify the conformity of goods or services within 30 days of receipt, unless the parties agree a longer period, and it is not “grossly unfair” to the supplier.
When is it deemed “grossly unfair”?
In determining whether it is “grossly unfair” for a purchaser to agree a time extension with a supplier, particular consideration must be given to:
- whether it is a gross deviation from good commercial practice or contrary to good faith and fair dealing
- whether the purchaser has an objective reason for requiring an extension
- the nature of the goods or services supplied
In addition to the fixed charges that a supplier may claim as compensation under the Act, the supplier can also claim any other reasonable costs of recovery. An attempt to exclude or limit this right is subject to a test of reasonableness.