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Late Payment of Commercial Debts Regulations 2013 Update

3.02.2014

On 16 March 2013, the Late Payment of Commercial Debts Regulations 2013 came into force amending the Late Payment Act 1998 in accordance with an EU Directive on combating late payment in commercial transactions.  The regime applies to commercial contracts for the supply of goods and services (other than excepted contracts) made on or after 16 March 2013.

Changes introduced by the Regulations include the following:

•  Interest on outstanding payments on commercial contracts for the supply of goods and services will start to run after certain time periods:

    -   where a business purchases goods or services and the contract is silent on payment time, interest starts to run on outstanding payments 30 days after receiving the supplier’s invoice, receiving the goods or services and verification or acceptance of the goods or services (where provided for by statute or contract), whichever is later. The parties can agree a due date for payment of up to 60 days after the latest of the events listed above.  Also if the extension is not “grossly unfair” to the supplier, the parties can expressly agree to extend the due date for payment beyond that.

    -   where a public authority purchases goods or services, interest will start to run on outstanding payments from 30 days after the latest of the events listed above. The parties may agree a due date for payment of up to 30 days from the latest of the events and interest will start to run from the earlier of the agreed due date for payment and the expiry of the 30 day limit.

•  An extension to the normal 30 and 60 day time limits where statute or the contract provide for a procedure of acceptance or validation.  The amount of time for purchasers to verify the conformity of goods or services with the contract is limited to 30 days, unless the parties expressly agree a longer period, and that period is not grossly unfair to the supplier.

•  The concept of “Gross unfairness.” Whether it is grossly unfair for a business purchaser to agree a time extension with a supplier will depend on all the circumstances of the case, and in particular:

    -   whether anything is a gross deviation from good commercial practice and contrary to good faith and fair dealing;

    -   the nature of the goods or services supplied; and

    -   whether the purchaser has an objective reason for requiring a change from the statutory provisions.

•  In addition to the fixed charge that a supplier may claim as compensation for the cost of recovering a debt (£40, £70 or £100, depending on the size of the debt), the supplier can also claim any other reasonable costs of recovery.

The parties can contract out of the new rules by providing a substantial remedy for late payment in the contract.  This will prevent statutory interest and the rule on fixed recovering costs applying to the contract.

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