SMEs to benefit from changes to the late payment legislation

The Late Payment of Commercial Debts Regulations 2013 was introduced on the 16th March 2013 and has amended the Late Payment of Commercial Debts (Interest) Act 1998.

The changes seek to assist SMEs in light of the recent changes following the Jackson Reforms.

Before the amendments, the Late Payment of Commercial Debts (Interest) Act 1998 provided for interest at a rate of 8.5% to be added on any overdue invoices, together with compensation. The amount of compensation varied depending on the amount of the invoice.

The Act has been amended so as to:

  • Impose maximum payment periods.
  • Limit the amount of time a purchaser has to verify goods or services.
  • Increase the amount of payment enforcement costs a supplier can recover.

Recovery costs
The major and most significant change to the Act is the ability to claim ‘reasonable recovery costs’, such as Debt Recovery charges. This co-insides with the small claim limit increasing to £10,000.00. The Act allows SMEs to recover reasonable costs that they have incurred in pursuing outstanding invoices, thus making it more viable to pursue late payers through the County Court.

Maximum Payment Periods
Where a business purchases goods or services, if there is no contract for payment or the contract is silent, interest will now start to run on outstanding invoices from 30 days; after receiving the invoice; or after receiving the goods; or on acceptance of the goods.

Parties can agree a due date for payment of a maximum of 60 days. Furthermore, extensions can be agreed with the parties, provided the extension is not “grossly unfair” to the supplier.

Verification Period
A 30-day extension to payment periods where there is an “acceptance or validation” procedure, i.e. where the purchaser is given time to verify that the goods or services conform to the contract before paying. The time limits are extended in those circumstances because the normal 30 or 60 day period only starts after the procedure is complete. However, the changes impose a limit of 30 days on the period for purchasers to check the goods or services, unless the parties expressly agree a longer period and that is not grossly unfair to the supplier.

Should you wish to discuss the new changes in more detail, please contact Rachel Greenway on 01283 526205 or email rachel.greenway@elselaw.co.uk.

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