Late and extended payment is one of the biggest threats to small and medium-sized suppliers in the UK. Large buyers — retailers, manufacturers, and public bodies — have historically imposed long payment terms or delayed invoices, forcing suppliers to fund the buyer's working capital at their own expense. The UK government has legislated against this through the Late Payment of Commercial Debts (Interest) Act 1998 and the Prompt Payment Code, but contractual terms that attempt to circumvent these protections remain common. If you are a supplier signing a supply chain contract with a large buyer, the payment terms clause is arguably the most important section of the contract. It determines when you get paid, what happens if the buyer is late, and whether you have effective remedies for delayed payment.
What is a Payment Terms?
Payment terms in a supply chain contract set out when an invoice becomes due, how it is to be submitted, what triggers the payment cycle (receipt of goods, approval of invoice, statement date), and what the consequences of late payment are. Under the Late Payment of Commercial Debts (Interest) Act 1998, B2B invoices carry a statutory right to interest at 8% above the Bank of England base rate from the date payment falls due. The Prompt Payment Code requires signatory companies to pay within 30 days for SMEs. The EU Late Payment Directive (2011/7/EU) — now retained in UK law — caps B2B payment terms at 60 days, with limited exceptions.
Red flags to watch for
The Late Payment of Commercial Debts Act (as amended by the 2013 Regulations implementing the EU Directive) caps B2B payment terms at 60 days unless a longer period is 'grossly unfair'. Terms of 90 or 120 days imposed on SMEs are almost certainly challengeable.
Clauses that say payment is due 'within 30 days of approved invoice' — with no deadline for approval — effectively give the buyer unlimited time to delay payment by delaying approval. Insist on a defined approval period.
Supply chain contracts from large retailers often include broad chargeback rights — the buyer deducts amounts from invoices for alleged non-compliance with delivery or labelling rules. Without a dispute procedure and notice requirement, these can be arbitrary.
The Late Payment of Commercial Debts (Interest) Act 1998 gives suppliers a statutory right to claim interest on late invoices. Any contractual term that purports to exclude this right is void (unless a 'substantial contractual remedy' is offered in its place).
Contracts that allow the buyer to set different payment terms on each PO can undermine any protection you negotiated in the master supply agreement. Payment terms should be fixed at the contract level.
Your legal rights
Under the Late Payment of Commercial Debts (Interest) Act 1998 (as amended), UK suppliers in B2B contracts have a statutory right to: interest at 8% above Bank of England base rate from the date payment falls due; a fixed compensation amount (£40, £70, or £100 depending on debt size) for each late invoice; and reasonable debt recovery costs. Payment terms exceeding 60 days are subject to challenge as 'grossly unfair' under the 2013 Late Payment Regulations. The Prompt Payment Code (administered by the Small Business Commissioner) sets a standard of 30 days for SMEs. The Small Business Commissioner (smallbusinesscommissioner.gov.uk) investigates unfair payment practices and can recommend payments.
Questions to ask before you sign
- 1What are the payment terms, and are they 30 days or 60 days from invoice or from delivery?
- 2What is the maximum time you have to approve or reject an invoice, and what happens if you miss that deadline?
- 3Does this contract include a chargeback or right-of-set-off provision, and what is the notice and dispute procedure?
- 4Does this contract preserve my statutory right to claim interest and compensation under the Late Payment Act?
- 5Are you a signatory to the Prompt Payment Code?
- 6What happens if a purchase order sets different payment terms from the master contract?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.