The EU Late Payment Directive for B2B contracts

  The EU Late Payment Directive came into force in the UK in March 2013, introducing some new measures for tackling overdue invoice payments, and restating some others that already existed in UK law.   Ostensibly, the Directive is about empowering creditors to pursue debtors with less ambiguity about when and how they can doRead More

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The EU Late Payment Directive came into force in the UK in March 2013, introducing some new measures for tackling overdue invoice payments, and restating some others that already existed in UK law.

 


Ostensibly, the Directive is about empowering creditors to pursue debtors with less ambiguity about when and how they can do so.

 

But what does that mean for B2B contracts, where payment terms are often subject to much longer deadlines, and invoice amounts may be very large?

 

Firstly, it is worth noting that the form of the legislation introduced in the UK includes a specific rule relating to payment terms on B2B contracts.

 

This is a default 60-day payment period, which can be altered through mutual agreement in the contract, but which means that, unless agreed otherwise, debt collection proceedings can be instigated 61 days after the date of issue of the invoice.

 

Meanwhile, new rules on the additional charges you can place on the debt apply to both B2B and B2C contracts – but, due to the larger size of many B2B invoices, could be particularly lucrative for such business deals.

 

A standing charge of £40, £70 or £100 can be placed on overdue debts of up to £1,000, £10,000 or higher respectively.

 

For the first time, if your reasonable debt recovery costs are greater than this amount, you can also claim back the difference from the debtor – effectively meaning you should not be left out of pocket for pursuing a debt.

 

You can also charge statutory interest at 8% above the Bank of England reference rate (defined as the base rate on the more recent of December 31st or June 30th).

 

Importantly, you are not obliged to enforce any of these charges, but are entitled to do so if you wish; if you do, you can apply statutory interest to the amount owed even without issuing a reminder for payment to your debtor.

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