Dealing With Late Payments

Dealing with late payments is particularly frustrating for smaller businesses whose very survival can rely on maintaining positive cash flow.

The Late Payment of Commercial Debts Regulations 2013 came into force on the 16^th March 2013, implementing the changes required by the EU’s Late Payment Directive 2011. The changes work to amend parts of the Late Payments of Debts (Interest) Act 1998 instead of repealing and replacing it.

The general aim of the amendments is to tighten the rules on the late payment of commercial debts, discouraging late payment to suppliers.

Business to Public Authority Contracts

Where the customer is a public authority, interest will run on any outstanding amounts from 30 days after the public authority has received the seller’s invoice, and the goods or service and been received and accepted, whichever step is later.

It is not possible for the parties to agree to any extension on this time, but a different start date can be negotiated by the parties.

Business to Business Contracts

Where no payment date is specified, interest will start to run on any outstanding amounts from 30 days after the buyer has received the sellers invoice, and the goods or service and been received and accepted, whichever step is later. The parties can expressly agree a due date which is more than 60 days after receipt, on the condition that the period is not ‘grossly unfair’ to the supplier.

Costs of Recovery

Previously, the compensation for recovery costs was limited to a fixed amount, depending on the amount owed; £40 for claims under £1000, £70 for claims under £10,000, and £100 for claims over £10,000. While these amounts remain unchanged, the amendments have introduced the right for the supplier to claim the difference between the fixed sum, and the ‘reasonable costs’ they incur attempting to recover the debt.

Gross Unfairness

In determining whether a longer period would be ‘grossly unfair’ to the supplier, all elements of the case are to be considered. In particular this includes anything that is a gross deviation from good commercial practice, and contrary to good faith and fair dealing.

The nature of the goods and services in question are also considered as well as whether or not the purchaser has any objective reason to deviate from what has been provided for by the provisions.

Conclusion

In light of these regulation changes, standard contract documentation should be reviewed to ensure payment periods are no longer than 60 days, as any longer period would need to be justified by the customer as not being ‘grossly unfair’.

As the change is not retrospective, only contracts made after the 16^th March 2013 are affected. Contracts that exclude statutory interest must include a substantial remedy for late payment, which would sufficiently compensate the supplier for any delay.

If you need assistance with managing late payments, Rollingsons has experienced lawyers who can assist you. For more information please contact Katherine Niccol on 0207 611 4848.