Business gets a boost on bringing in debts

29 April 2014

Changes in the statutory protection for late payment of commercial debts sees a tightening up on how quickly commercial debts should be settled and the opportunity to recover costs, but businesses wanting to use the legislation need to make sure their contract terms do not over-ride the terms of the Act.

The changes came into force on 16 March 2013 for contracts entered into after that date. One key change is that commercial businesses will be expected to pay their supplier invoices within 30 days, unless they have both agreed a longer time limit, of no more than 60 days.

And all public bodies will now be required to pay their suppliers within 30 days, except for some healthcare and economic activities.

Statutory interest will now be a minimum of 8% above the European Central Bank’s reference and interest will start to run automatically if the period for payment is not specified, or where it is deemed to be "grossly unfair".  The interest charges will automatically kick in at 30 days from the latest date of either receiving the supplier's invoice, or of receiving or accepting the goods or services.

And unless a ‘reasonable’ longer period is agreed, any purchaser must confirm that goods or services conform with the contract within 30 days. 

Another important change is the right to claim compensation for reasonable costs incurred in recovering a debt, when the amount exceeds the established fixed charge sum of 40 Euros.

Explained commercial law expert Edward Worthy of Chelmsford solicitors Gepp & Sons:   "It’s important that business recognises that the new provisions will not apply to contracts made before the commencement date of the new legislation, which was 16 March 2013.  They also need to be sure that their own contract terms, or the terms imposed by the customer, do not override the legislation if they want to make use of it."

He added:  “As well as the tighter control on the length of time customers can take to pay an invoice, the law is on your side to claim a more generous rate of interest on late payments.  It offers a rate of 8% over the European Central Bank rate, which makes it considerably higher than most commercial contracts. But if you have a different rate of interest in a contract, you will not be able to claim the statutory rate of interest, so again you need to check your small print.” 

The updated legislation – made under Directive 2011/7/EU – aims to strengthen legislative provisions to tackle the culture of late payments in commercial transactions within the European Union.  

This information is not intended as legal advice