The Late Payment of Commercial Debts Regulations 2013 came into force on 16 March 2013.This implements the Directive 2011/7/EU on combating late payment in commercial transactions. They apply to commercial contracts made on or after 16 March 2013 for the supply of goods or services.
The legislation already covered both business to business transactions and business to public authority transactions. If the debt remains unpaid after the date specified in the contract, then the creditor can write to demand.
If there is no contract, then interest will accrue after 30 days, from the later of receipt of the invoice or receipt of goods or services
The main changes of the new legislation are:
- A creditor can choose to not charge interest to a business customer, but when the money is owed by the public sector, they MUST pay charges and late payment interest if they don’t pay on time (set at 30 days)
- The recommended payment terms within the Act are 30 days, however contracting up to 60 day terms, in exceptional circumstances, is permissible.
- Invoices not paid after 60 days (on both business to business and business to public sector) will be deemed as being “grossly unfair"
- Payment terms in breach of these limits will mean that interest will incur after 30 days, regardless of what the agreed terms state
- Unlike the old directive, you cannot now contract out of paying late payment interest
- Each Government can set their own rate of interest
Under the old Directive, interest could be claimed at 8% above the Bank of England in the UK and 7% above the European Central Bank for European debts. This new directive permits each government to set their own rate of interest for late payment, however, the minimum rate they are allowed to charge is 8% above the European Central Bank rate.
Under the new Directive the minimum sum which must be claimed is 40 Euros regardless of the size of the debt and each member state must set its own levels. The levels in the UK will remain as currently, i.e. £40/£70/£100, depending on the size of the debt.
What is new is that, if the creditor's reasonable costs in recovering the debt are not met by the fixed sum, the creditor will now also be permitted to claim a sum equivalent to the difference between the fixed cost and those reasonable costs expended. "Reasonable" has not been determined!
What you need to do
The Regulations do not apply retrospectively, so you do not need to review your existing contractual arrangements.
However you will need to ensure that any supply contracts you enter into from 16 March 2013 onwards reflect the requirements set out in the Regulations.