Last edited 06 Oct 2020

The Late Payment of Commercial Debts Regulations 2013

In these economically challenging times, businesses, especially those in the construction sector, need all the help they can get in encouraging prompt payment and aiding cash flow. Indeed poor payment practices, rife in the construction industry, blighted many businesses and contributed to the introduction of the Housing Grants Construction and Regeneration Act 1996 (HGCRA). Now, further help is at hand in the form of the Late Payment of Commercial Debts Regulations 2013.

The Regulations are aimed at combating late payments in commercial transactions, and came into force on 16 March 2013. They apply to commercial contracts in England, Wales and Northern Ireland (they came into force separately in Scotland on 29 April 2013). They do not have retrospective effect so do not apply to contracts entered into before these dates.

The legislation is intended to bolster the protection already afforded to business by the Late Payment of Commercial Debts (Interest) Act 1998 (the Act). The Act provides for simple interest to be payable on outstanding debts at a penal rate of 8% above the Bank of England base rate.

The Regulations apply to all businesses, including small businesses and public authorities.

Research undertaken across the EU indicates that the culture of late payment is still the scourge of small and medium sized businesses and this detrimentally affects cashflow, damages business confidence thereby impacting on investment decisions and can in the worst case lead to insolvencies. The current Regulations were enacted to further discourage late payment and to bring UK legislation in the into line with the EU.

The Regulations amend the Act by imposing limits on payment periods of:

The Regulations also:

The reference to ‘grossly unfair’ requires a consideration of all the circumstances of the case including anything that is a gross deviation from good commercial practice and contrary to good faith and fair dealing and considering the nature of the goods and services in question.

Interestingly, the HGCRA does not stipulate payment periods, simply providing that parties are free to agree what payments are due and when, ie, the contract must set out an adequate mechanism for determining these matters. In default the Scheme for Construction Contracts applies providing a payment period of 17 days from the due date to the final date for payment.

Whilst it is crucial for businesses to have written terms of trade for clarity and certainty, support from the Regulations is certainly welcome particularly for those small to medium sized businesses which make up a large proportion of UK business struggling to survive in these harsh economic conditions.

[edit] Related articles on Designing Buildings Wiki

[edit] External references

Designing Buildings Anywhere

Get the Firefox add-on to access 20,000 definitions direct from any website

Find out more Accept cookies and
don't show me this again