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The legal payment term is a crucial concept to understand when drafting invoices and payment agreements between companies and consumers in the UK. It refers to the period within which the payment must be made before statutory interest becomes due. In this article, we will cover the various aspects of legal payment terms.

What is the legal payment term of an invoice?

The Payment Terms Act 2017 sets the statutory payment term to 30 days in the UK. This implies that the invoice must be paid within 30 days from the receipt of the invoice, unless other arrangements have been agreed upon by the parties. In some cases, the payment term can also be reduced if there is non-payment.

Statutory payment term for consumers

The same legal payment term of 30 days applies to consumers in the UK, unless otherwise agreed. This implies that businesses must pay the invoice within 30 days from receipt, or else they will owe statutory interest.

Legal payment term for companies

For companies, a legal payment term of 30 days applies in principle, unless otherwise agreed. However, there is more room for negotiations in payments between companies. For instance, it is possible to agree in the contract that the payment term is longer than 30 days. This may be the case for large amounts or complex projects.

Agreements between companies: what is the maximum payment term for invoices

In the UK, there is no set maximum payment term for payment agreements between companies. However, payment terms exceeding 60 days are generally considered unfair and can be challenged by the courts. Any agreement that stipulates a payment term beyond 60 days must justify why it is necessary.

Statutory payment term for large companies

Large companies in the UK, defined as those with more than 250 employees and/or an annual turnover of over £36 million, have a different legal payment term from ordinary companies. A maximum payment term of 60 days applies to these companies, unless there is an express agreement between the parties.

What is the legal payment term for SME/SMP?

For small and medium-sized enterprises (SMEs) in the UK, the same legal payment term of 30 days applies as for consumers. This implies that businesses must pay the invoice within 30 days from receipt, or else they will owe statutory interest. However, it can be more challenging for SMEs to enforce payment terms when the invoice has not been paid.

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