Business to business transactions
When payment is not stated
If the contract does not specify a payment period, then the purchaser must make payment within 30 calendar days after the following:
- Receiving the supplier’s invoice.
- Receiving the services or goods.
- Acceptance and verification of the goods or services where the statute provides for it in the contract.
If the two parties have an agreed period of, let’s say, 60 days, then payment should be made by then unless there is another agreement made by the parties and one that is not grossly unfair to the supplier.
Public to business transactions
All public authorities are required to make payment within 30 calendar days of:
- Receiving the invoice.
- Receiving the service or goods.
- Verifying the goods or services.
The UK Government puts these stringent measures on the public sector because they should set a strong example for prompt payments. With time, they have been improving on their payment times to assist businesses with their cash flow.
This directive was imposed on the Member States for commercial transactions where the client is a public authority. Their payment period MUST not exceed 30 days after receipt of the invoice.
In 2010, the government went further to introduce a more demanding target that went beyond this and all other previous versions. It committed Whitehall Government Departments to ensure that they aim to pay at least 80% of disputed invoices within the first five days.
When adopted, this directive seeks to ensure that the central contracts enjoy the benefits of prompt payments. It also looks to improve the payment times within the chain of supply.
All Whitehall departments are required to always include a clause in their contracts for the prime contracts to pay the suppliers in the first 30 days.
Late payment directive on statutory interest rate
If the purchaser defaults on payment, then the supplier can automatically charge interest at the statutory rate. According to the European Parliament Amendment, the provided interest rate should be 8% above the reference rate or the Central Bank’s base lending rate.
For non-Eurozone countries, this rate is equivalent to the national central bank. For England, this should be the Bank of England’s Base Rate.