Payment Terms Legislation In United Kingdom

The Late Payment of Commercial Debts (Interest) Act 1998, Section 4, was amended in 2013 to enact a maximum term of 30 days for public authority payments and 60 days for commercial terms, unless expressly agreed by both parties and not grossly unfair. Where no terms are specified in the contract the term is 30 days. Compensation for recovery costs is also provided.

Section 110 of the Housing Grants, Construction and Regeneration Act 1996 applies the ‘Scheme for Construction Contracts’ where a construction contract fails to provide a payment term. The scheme terms are 7, 17 and 30 days depending on the type of payment.

The UK government’s prompt payment policy requires all organisations bidding for government contracts over £5 million to demonstrate that they pay 95% of all supply chain invoices within 60 days. In addition to existing laws the government also commits to pay 90% of undisputed invoices to SMEs within 5 days.

The UK government requires larger companies to report on their ability to make payments within agreed terms. Various measures are reported to the Department for Business, Energy & Industrial Strategy, and the data is publicly available.

The Prompt Payment Code underwent changes in 2021, requiring confirmation from all signatories by 2022. Administered by the Small Business Commissioner the new commitment is to pay 95% of invoices within 60 days, and 95% of invoices to businesses with less than 50 employees within 30 days.

The Construction Supply Chain Payment Charter promoted standard terms by 2025 of 30 days from the end of the month of completion of works. However this code has been replaced by the duty to report on payment practices and the government prompt payment policy.

The Network Rail Fair Payment Charter by the Commercial Directors Forum for the rail industry commits to terms between 21 and 28 days.

The Grocery Supply Code of Practice, which applies to supermarkets with a turnover of more than £1 billion, requires no delay in payments and within a reasonable time after the date of the supplier’s invoice.

The statutory interest rate for late payment of commercial transactions is the Bank of England base rate plus 8%.