Summary. The Late Payment of Commercial Debts Regulations 2013  came into force on 16 March 2013.

Background. The 2013 Regulations implement the changes set out in the Late Payments Directive  and amend the Late Payments of Commercial Debts (Interest) Act 1998.

Facts. The aim of the 2013 Regulations is to encourage prompt payment of invoices, in particular to protect small suppliers from suffering cash flow problems due to late payment of their invoices.

The 2013 Regulations will apply to the supply of goods and services and impose new time limits to pay invoices in addition to the existing statutory rate of interest for overdue payments set out in the 1998 Act. The amendments made by the 2013 Regulations will only apply to contracts made after 16 March 2013.

The 2013 Regulations introduce new time limits to pay invoices for the following types of contract:

         Business-to-business contracts.

If the contract is silent on the payment term, payment must be made within 30 calendar days after the latest of the customer receiving the supplier's invoice, receiving the good or services, or verifying or accepting the goods or services. If the contract contains an express payment term, the parties can agree payment up to 60 days from the date of invoice, receipt of goods or services or verification or acceptance of the goods or services. The parties can agree an extension to this limit and go above 60 days as long as this is in writing and not "grossly unfair". The 2013 Regulations define "grossly unfair" as anything that is a gross deviation from good commercial practice and contrary to good faith and fair dealing, taking into account the goods and services in question, and whether the buyer has any objective reason to deviate from the standard 60-day period.

                 Business-to-public authority contracts.

If the contract is silent on the payment term, payment must be made within 30 calendar days after the latest of the   customer receiving the supplier's invoice, receiving the good or services, or verifying or accepting the goods or services. Public authorities must pay more quickly than businesses. If the contract contains an express payment term, public authorities must pay within 30 days from the date of invoice, receipt of goods or services, or verification or acceptance of the goods or services. There is no possibility to extend this period.

The 2013 Regulations do not change the statutory rate of interest that applies to late payments not made within the prescribed payment period. This remains at the current level of 8% over the Bank of England base rate (which is used as the base reference rate fixed on 1 January for the following six months and then on 1 July for the following six months).

Parties may contract out of the statutory interest rate and negotiate their own more commercially acceptable interest rate as long as it provides a substantial remedy for late payment.

The supplier can claim a fixed charge for recovering the debt (£40, £70 or £100 depending on the size of the debt) plus any other reasonable costs of recovery.

Comment. Clients should review their standard terms and conditions of purchase to see if they include a payment period that exceeds 60 days, as a customer will be required to justify that such a longer term is not grossly unfair to the supplier. Note that any term that completely excludes the right to claim interest will always be considered grossly unfair.