Late Payment Legislation changes

Posted by diane.bantten


Listen up …. some good news for businesses.  Late Payment legislation has at last been updated as from 16th March 2013.

The Late Payment of Commercial Debts (Interest) Act 1998 has been updated with effect from 16 March.

What has changed?

The Act continues to apply to contracts for the supply of goods or services where the customer is either a business or public authority and still imposes a statutory rate of interest of 8% over Bank of England Base on late payments unless the parties have agreed a ‘substantial remedy’.  However the Act has been amended so as to:

  • impose maximum payment periods;
  • limit the amount of time a purchaser has to verify goods or services; and
  • increase the amount of payment enforcement costs a supplier can recover.

These changes only apply to contracts under which statutory interest is accruing (ie if there is not a ‘substantial remedy’ under the relevant contract).

The maximum payment period

In a contract where the customer is a public authority the parties can agree a date for payment of up to 30 days from the latest of the customer:

  • receiving the goods or services;
  • receiving the supplier’s invoice; or
  • verifying that goods or services conform to the contract.

If the customer is a business, the payment period can be up to 60 days after the latest of the events listed above. The period can also exceed 60 days but only if expressly agreed by the parties and if it is not ‘grossly unfair’ to the supplier.

The maximum verification period

The Act limits the amount of time purchasers have to verify the conformity of goods or services to 30 days, unless the parties expressly agree a longer period and that period is not ‘grossly unfair’ to the supplier.  Longer periods may be appropriate in particularly complex contracts.

Recovery of costs

Suppliers were already able to claim a fixed sum of between £40-£100 (dependent on the size of the debt) under the existing legislation to compensate them for the costs of recovering late payments.  The changes introduce the additional right for a supplier to claim the difference between the reasonable costs it incurs in debt recovery for example when you instruct Acquit Debt Recovery! Any unreasonable attempt to exclude either the fixed sum or top-up costs will fail.