Resolving commercial disputes: Late Payment Regulations

The regulations enable a supplier to charge interest where a customer delays paying its invoice, is in breach of contract, and the terms of payment agreed (or implied) between the parties.

When do the Late Payment Regulations apply?

The regulations apply to all contracts for the supply of goods or services where each party is acting in the ordinary course of business. Consumer credit agreements, contracts functioning by pledge and mortgages are all exempt.

What do the Late Payment Regulations entail?

In outline, the regulations state:

When a customer’s payment becomes late, the supplier may claim interest as part of the debt recovery. 

If the two parties have not agreed when payment is to be made, the regulations imply that a business transaction is considered late 30 days after the customer receives the invoice or the supplier deliver the goods/services.

The interest which may be charged if another business is late paying for goods or services is called statutory interest. This is currently 8% above the Bank of England base rate for business transactions.

If a business delays in paying for goods or services, they may also be charged a fixed sum, in addition to the interest charges. The fixed sum depends on the amount of debt owed and is determined by the late payment legislation available on the Gov.uk website 

https://www.gov.uk/late-commercial-payments-interest-debt-recovery/when-a-payment-becomes-late

The regulations only apply to “qualifying debts”. This means a debt arising out of failure to comply with a contractual obligation to pay a contract price (agreed in a contract of sale).

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