Payment term legislation in the UK

Yes.  The Late Payment of Commercial Debts (Interest) Act 1998 (the “Act”), the Late Payment of Commercial Debts Regulations 2002 and Late Payment of Commercial Debts (Scotland) Regulations 2002 (all as amended) apply. These incorporate the UK’s transposition of EU Directive 2011/7/EU on combating late payment in commercial transactions which provided for entitlement to interest (currently fixed at 8% above the Bank of England base rate on specified dates) and a fixed sum on late payment.  

2. Is there a standard payment term set out in law? If so, what is it?

If the parties do not agree a payment date, the standard payment term is 30 days from whichever date is the latest out of: receipt of the invoice; receipt of the relevant goods or services; or verification/acceptance of the goods or services (where applicable).

3. What are the circumstances in which parties may contractually agree to extend payment beyond the standard payment term?

The period for payment fixed in the contract should not exceed 60 days in a B2B context unless otherwise expressly agreed in the contract.  

It is possible to contractually vary the provisions in the Act to provide for a longer payment period, but only if the agreed payment date is not grossly unfair to the supplier.  

The Act also clarifies the circumstances in which statutory interest may be ousted or varied.  In those cases, the contract should also provide a “substantial contractual remedy” for late payment. A remedy is “substantial” if it is fair and reasonable as compared with the statutory provisions and is sufficient to compensate the supplier and deter late payment. 

4. May an obligation beyond the standard payment term be evidenced in a PO?

Yes, assuming that the PO is a standard contract or refers to a contractual framework. We recommend that payment terms should be expressly stated in the contract, particularly those beyond 30 days. 

5. Are there any penalties for breach of payment term legislation other that a civil claim of the seller?

No; however, please note that payment terms which are found by a court to be non-compliant with the legislation would automatically be replaced by the statutory terms.

6. Is there any special legislation regarding payment obligations for the COVID-19 situation?

No such legislation has been adopted.

7. Any additional comments

In addition to potential liability under the Act, businesses should also consider other regimes that may affect their payment obligations, such as the voluntary Prompt Payment Code (whereby signatories commit to pay suppliers in accordance with their contractual payment terms) or industry-governing regimes such as the Groceries Supply Code of Practice.     

Scottish legal advice should be sought in relation to any potential claims in the Scottish courts.

Payment term legislation in the UK

Iain Stansfield
Iain Stansfield
Practice Group Leader, Technology, Media, Intellectual Property and Competition