Get your ‘Interest’ right

We have written many articles in the past about ensuring that your Terms of Business properly set out the rate of interest which you are entitled to recover in the event of a late payment.

In the absence of any specific terms in your Terms of Business, you can however rely on the Late Payment of Commercial Debts (Interest) Act 1998, if you are providing goods or services to another business.  If your customer is an individual and your terms of business do not mention late payment interest, you may be able to apply the Court rate of interest which is (a currently very favourable!) 8% if proceedings are issued. 

There are however a number of changes to the Late Payment of Commercial Debts (Interest) Act under the Late Payment of Commercial Debts Regulations 2013 which came into force on 16 March 2013. 

The main changes affecting contracts concluded after 16 March 2013 under the new legislation are:

 Payment terms –the period for payment for business to business contracts of the price fixed in the contract must not exceed 60 calendar days. The parties may agree a period beyond 60 days provided this is not "grossly unfair". If the contract is silent on the time for payment then interest will start to run on overdue payments from 30 days after the latest of receiving the supplier's invoice, receiving the goods or services or acceptance of the goods or services. 

 Public sector payment terms – in commercial transactions where the purchaser is a public authority, the payment period must not exceed 30 calendar days following receipt by the purchaser of the invoice.

Verification periods – the length of time for accepting goods or services must not exceed, as a general rule, 30 calendar days.The parties can agree a longer period providing it is not "grossly unfair" to the supplier. This will mean that a party has 30 days to accept and then a further 30 days to pay.

Cost recovery - suppliers’ costs can be recovered for enforcing payment in excess of the fixed payments that suppliers are currently entitled to.

If you would like us to review your Terms of Business to ensure that they incorporate any changes in the Late Payment of Commercial Debts (Interest) Act 1998, please contact Matthew Miles.