The UK government has updated the Late Payment of Commercial Debts (Interest) Act to put a new EU Directive on the matter into national law. Extensive information about ‘The Late Payment of Commercial Debts Regulations 2013’ and how it updates previous rules are available on the legislation.gov.uk website.
Helpfully, Law firm Mills & Reeve has summarised the main changes to the late payments rules on its website. Make sure you have a look as it provides useful information.
If you don’t have the time right now, I’ve summarised the five that I see as being the most significant:
- In B2B contracts payment terms for prices fixed in the contract may not exceed 60 calendar days from delivery of the invoice or delivery/acceptance of the goods/services (whichever is latest)
- Parties can agree B2B longer payment terms, but only if they are not “grossly unfair” to the supplier
- The payment terms for public sector organisations may not exceed 30 calendar days
- If contracts don’t specify payment terms, statutory interest (of 8%) can be charged after 30 days
- The new rules now allow “reasonable costs” to be charged to compensate for the costs of recovering a late payment. This could result in entitlement to larger sums than the £40 – £100 allowed previously.
Experian’s payment performance data shows that business are paying their bills faster on average (improving by a whole day in the first three months of 2013), but there is still caution among many firms when it comes to offering favourable payment terms.
While we welcome any attempt to eliminate unfair payment practices, simple administrative errors tend to be the main reason for late payment. Businesses that practice good forward planning and have the right administrative processes for monitoring and addressing late payment are most successful at minimising its impact.
Experian has a short video with advice for small businesses on how to ensure customers are good payers. Let us know if you find it useful.