Time to Pay

Offering customers a delay in payment could limit your ability to recover debts.

Service providers out there, including those providing professional services, may be tempted to extend time for their customers to make payment. It is often the reasonable thing to do. Helping your customer, not least in the current economic climate, can help foster good relations which may lead to more business in the future. Every business is currently experiencing a ‘tightening of belts’; a little more time will not hurt, right?

Think carefully as it may do when it comes to Dispute Resolution and, importantly, when pursuing unpaid invoices.

In Consulting Concepts International Inc v Consumer Protection Association (Saudi Arabia) [2022] EWCA Civ 1699, the Commercial Court reiterated the strict nature of section 5 of the Limitation Act 1980:

‘An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued’.

The Judges also examined the case of Henry Boot Ltd v Alstom Ltd [2005] EWCA Civ 814, [2005] 1 WLR 3850:

‘[W]here A does work for B at B’s request on terms that A is entitled to be paid for it, his right to be paid for it (i.e. his cause of action) arises as soon as the work is done ‘unless there is some special term of the agreement to the contrary’’.

It has therefore always been clear that it is not the date when payment of the invoice becomes due for the work that triggers the commencement of the limitation clock ticking, but rather when the services are deemed completed. That is, unless there is a provision in the contract that the Court deems is a ‘special term’ (i.e. a term in clear words that the parties have altered the usual position).

What if you have a term in your contract or terms and conditions which states ‘invoices will be issued within 90 days’? What if you have entered into an agreement, after completing the service, which contains a term to postpone payment to a later date or that it is payable by a certain date 6 to 12 months in the future?

The Commercial Court was not prepared to accept the above as amounting to a ‘special term’, especially when a claim is brought for recovery of an invoice which is dated after the date the service was completed.

Considering the above, it would be prudent to have terms and conditions which either specifically reference a change to the limitation period for bringing a claim for outstanding payment or, alternatively, ensure any disputed recovery for payment is issued promptly and within 6 years from the date performance of the service is completed.

Manisha Modasia, Associate at Kuits Dispute Resolution Team, can assist in disputes you have with your customers and delays in payment of your invoices. Please make enquires on 0161 838 7823.