GET READY FOR THE “LATE PAYMENT OF COMMERCIAL DEBTS REGULATIONS 2013”

The Late Payment of Commercial Debts Regulations 2013 (‘the Regulations’) will come into force on 16 March 2013 implementing changes to commercial contracts for the supply of goods and services (excluding excepted contracts) made on or after this date.

The Regulations will make a number of changes including the following:-

Payment Periods:

Public Authorities

Where a public authority enters into a commercial contract for the supply of goods or services (which is not a consumer credit agreement or a contract intended to operate by way of mortgage, pledge, charge or other security), interest will start to run on outstanding payments from 30 days after the latest of receiving the supplier’s invoice, receiving the goods or services and verification or acceptance of the goods or services.

Businesses

Where a business enters into a commercial contract for the supply of goods of services (excluding those as listed for public authorities) where the contract is silent on time for payment, interest will start to run on outstanding payments from 30 days after the latest of receiving the supplier’s invoice, receiving the goods or services and verification or acceptance of the goods or services.  However, the parties can agree a due date for payment of up to 60 days after the latest of these events, and, if the extension is not “grossly unfair” to the supplier, can expressly agree to extend beyond that period.

Acceptance and validation processes: an extension to the normal 30 and 60 day time limits where statute or the contract provide for a procedure of acceptance or validation will be introduced by the Regulations.  A limit is placed on the amount of time purchasers can 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.

“Gross Unfairness” concept: in determining whether it is grossly unfair for a business purchaser to agree a time extension with a supplier, all of the circumstances of the case are taken into account, particularly:

  • whether anything is a gross deviation from good commercial practice and contrary to good faith and fair dealing;
  • the nature of the goods or services supplied; and
  • whether the purchaser has an objective reason for requiring a change from the statutory provisions.

A gross unfairness test, which is new to English law, and a requirement for good faith will be introduced by the Regulations. 

Recovery costs: the supplier can claim any other reasonable costs of recovery in addition to the fixed charge that a supplier may claim as compensation for the cost of recovering a debt.  Any attempt to exclude or limit this right will be subject to the reasonableness test under the Unfair Contract Terms Act 1977.

Meaning of “public authority”: a contracting authority within the meaning of regulation 3 of the Public Contracts Regulations 2006.