Late Payment of Commercial Debts Regulations 2013

21 February 2013 saw the Late Payment of Commercial Debts Regulations 2013 (“Regulations”) being passed to come into force on 16 March 2013, meeting the Government’s obligation to implement the European Late Payment Directive. The Regulations amend the Late Payment of Commercial Debts (Interest) Act 1998 (“Act”), rather than repeal and replace it. The amended Act applies to commercial contracts for the supply of goods and services (other than excepted contracts) made on or after 16 March 2013.

The Regulations make a number of changes to the Act, including the following:

• Interest. Where a business or public authority enters into a commercial contract for the supply of goods and services (which is not a consumer credit agreement or a contract intended to operate by way of mortgage, pledge, charge or other security):
  • If no time for payment is stated in the contract. Interest will start to run on outstanding payments from 30 days after the latest of:
    o   receiving the supplier's invoice;
    o   receiving the goods or services; and
    o   verification or acceptance of the goods or services (where provided for by statute or contract).
  • By agreement. Businesses can agree a due date for payment of up to 60 days after the latest of the events listed above, and, if the extension is not "grossly unfair" to the supplier a date beyond that. Public authorities can agree a due date for payment of up to 30 days after the listed events. 
• They introduce an extension to the 30 and 60 day time limits where statute or the contract provides for a procedure of acceptance or validation. They limit the amount of time for purchasers to verify the conformity of goods or services with the contract to 30 days, unless the parties expressly agree a longer period, and that period is not grossly unfair to the supplier.
• The confirm that all the circumstances of the case are taken into account when determining whether it is grossly unfair for a business purchaser to agree a time extension  for payment, in particular:
  o   whether anything is a gross deviation from good commercial practice and contrary to good faith and fair dealing;
  o   the nature of the goods or services supplied; and
  o   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. Any attempt to exclude or limit this right is made subject to the Unfair Contract Terms Act 1977 (UCTA) reasonableness test (regardless of whether the contract concerned is on written standard terms or a individually negotiated agreement).

 
The existing provisions of the Act remain to allow the parties to a commercial contract for the provision of goods or services to include an express term providing a substantial remedy for late payment that will be effective to exclude statutory interest under the Act, even after 16 March 2013.