When does a payment become late?
The point at which a payment becomes late depends on whether you have agreed a credit period with the customer.
You can agree any credit period you want with customers but you should agree the payment period before the transaction takes place. Don't assume your usual terms apply as the payment period should be part of your negotiation on pricing and is the period agreed between parties. This agreement can be verbal but it should preferably be in writing.
Industry standards for payment tend to be net monthly - that is, payment at the end of the first full month following receipt of the invoice. These terms are standard as they allow a business to actively plan payments. However, you should negotiate your own terms and price your services accordingly.
Where there is neither an agreement in place nor custom and practice in operation, the law sets a default period of 30 days.
This period starts from whichever of the following is later:
- the date on which the goods are delivered or the service is performed
- the date on which the customer receives notice of the amount of the debt
Purchasers cannot contract out of late payment legislation ie they cannot deny the supplier their right to, for example, charge statutory interest once a payment is overdue.
Fair Payment Code
The Fair Payment Code (FPC) is a tiered system of Awards aimed at driving best practice and improving payment performance. It replaces the Prompt Payment Code.
The three Awards are:
- Gold Award – for businesses paying at least 95% of all invoices within 30 days
- Silver Award – for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days
- Bronze Award – for businesses paying at least 95% of all invoices within 60 days
Every business granted an Award agrees to abide by the Code’s principles of being Clear, Fair and Collaborative with their suppliers.
Find out more about how to sign up to the .