Late Payment of Commercial Debts Regulations 2013: Buyer Beware!

Tuesday 19 March 2013

On Saturday 16 March 2013 new regulations came into force changing the law surrounding commercial contracts for the supply of goods and services. The Late Payment of Commercial Debts Regulations 2013 have been created to implement the Directive on combating late payment in respect of commercial transactions (2011/7/EU) (which member states were to implement by 16 March 2013) in the UK. The Regulations will apply to commercial contracts entered into on or after 16 March 2013.

The Regulations impose a new default payment period for commercial contracts whereby interest for late payment will start running from the date of a fixed event, which will usually be 30 days from either:

a. receipt of the invoice;
b. receipt of the goods or services; or
c. acceptance of the goods or services (where provided by statute),
whichever is latest.

Business parties to a contract are able to agree a longer period for payment (without interest) of up to 60 days from the above event, or even later as long as such extension is not “grossly unfair” to the supplier. The Regulations also apply to public authority contracts, in which case interest will also start to run from 30 days of the events outlined above, but without an extended agreed time limit being available.

The concept of “gross unfairness” is a new concept which will be applied by the courts in due course as disputes arise. In doing so, the circumstances in each case will be taken into account including the following:

• the nature of the goods and services;

• the existence of an objective reason for such departure from the statutory provisions; and

• the concepts of good faith and fair dealing.

Interest will start to run from the earlier of the agreed date for payment or the prescribed date as above. It is therefore important for purchasers to be aware of the above provisions as the date stipulated in the contract may not always be the correct position in law. Defaulting purchasers are required to pay interest at a rate which provides a “substantial” contractual remedy and compensation for the cost of recovering the debt which, for supply contracts on a large commercial scale, can amount to a significant addition to the purchase price.  So, in conclusion – buyer beware!