Supplier payment terms: legal limits, late payment interest and how to set fair terms

Suppliers & risk · By the Buyer's Ledger editorial team · Published 2026-10-26

An open monthly planner on a wooden desk, its blank date grid in soft focus — Payment terms are counted in calendar days. The legal clock usually starts when the invoice or the goods arrive, whichever comes later.

Payment terms are one of the few levers that cost a buyer nothing to pull and a supplier a great deal. Stretching them improves the buyer's cash position, but past a point it breaks the law, raises prices and weakens the suppliers you depend on. This guide sets out the legal limits in the EU, France and the UK, what happens when you pay late, and how to set terms you can actually keep.

What "payment terms" cover

A payment term states when an invoice must be paid, counted from a trigger: the invoice date, receipt of the invoice, delivery of the goods or completion of a service. "Net 30" means the full amount is due 30 days after the trigger; "30 days end of month" means the 30 days are counted from the last day of the month in which the invoice was issued, which in practice can mean up to around 60 days. The term only works if the buyer's own process can meet it: purchase order, goods receipt and invoice matching, approval and the payment run, as described in our guide to the procurement process.

The legal limits

European Union

The Late Payment Directive 2011/7/EU, which member states had to transpose by 16 March 2013, sets the baseline for commercial transactions:

Between businesses: if the contract sets no date, payment is due 30 days after receipt of the invoice (or of the goods or services, if later). A contractual period may not exceed 60 days unless it is expressly agreed and not grossly unfair to the supplier.
Public authorities buying from businesses: 30 days, which may be extended to no more than 60 days only if expressly agreed and objectively justified, or for public health care bodies where a member state allows it.
Acceptance or verification of the goods or services, where the contract provides for it, should not take more than 30 days unless expressly agreed and not grossly unfair.
When payment is late, the supplier is entitled to interest at the European Central Bank's reference rate plus at least eight percentage points, and to a fixed minimum of €40 for recovery costs, without needing a reminder.

The directive sets minimums; member states may be stricter. In September 2023 the European Commission proposed replacing it with a regulation that would set a single 30-day maximum for business and public payments (procedure 2023/0323(COD)). The European Parliament adopted its position in April 2024, but Council discussions in late 2025 showed no agreement among member states, so check the procedure's status before planning around it.

France

France is one of the stricter examples. Under article L441-10 of the Commercial Code, the agreed period may not exceed 60 days from the invoice date, or, if expressly agreed and not grossly unfair, 45 days end of month; without agreement, payment is due 30 days after receipt of the goods or performance of the service. Late payment penalties apply automatically, along with a €40 fixed indemnity for recovery costs. Compliance is enforced by the competition and consumer protection authority (DGCCRF), which can impose administrative fines of up to €2 million on a company under article L441-16; a bill to raise that ceiling was before Parliament in 2026.

United Kingdom

The Late Payment of Commercial Debts (Interest) Act 1998, as amended, applies between businesses. According to the UK government's guidance, business payments must usually be made within 60 days; a longer period can be agreed but must be fair to both businesses. Public authorities must usually pay within 30 days. If no date is agreed, payment is late 30 days after the customer receives the invoice or the goods or service, whichever is later. Statutory interest is 8% plus the Bank of England base rate, and the supplier can add a fixed sum for recovery costs: £40 for debts under £1,000, £70 for debts of £1,000 to £9,999.99 and £100 for £10,000 or more.

Two further rules shape UK practice. Large companies must publish their payment practices and performance twice a year under the Reporting on Payment Practices and Performance Regulations 2017, which makes average payment times visible to suppliers and journalists. And under the Procurement Act 2023, public contracts carry a 30-day payment term for undisputed invoices that must be flowed down to subcontractors, as covered in our guide to the UK Procurement Act. A government Commercial Payments Bill, introduced in the House of Lords in May 2026, would cap most business-to-business terms at 60 days; it was still before Parliament in September 2026.

Early payment discounts: do the arithmetic

A term such as "2/10 net 30" offers a 2% discount for payment within 10 days, otherwise the full amount at 30 days. Paying on day 10 instead of day 30 means paying 98 twenty days early to save 2. Over a year, that is equivalent to an annual return of about 37% (2/98 × 365/20). Few uses of cash beat that, so a buyer with liquidity should usually take such discounts, and a supplier offering them is paying a lot for early cash, which may itself be a signal worth noticing in a supplier risk review.

Supply chain finance (also called reverse factoring) lets suppliers be paid early by a bank on the strength of the buyer's approved invoice, while the buyer pays the bank at the end of the term. It can help both sides, but it is not a licence to stretch terms: since 2024, amendments to IAS 7 and IFRS 7 adopted by the International Accounting Standards Board in May 2023 require companies reporting under IFRS to disclose supplier finance arrangements, so long terms propped up by such programmes are now visible to investors.

Why stretching terms backfires

Prices rise. Suppliers finance the wait and build the cost into their quotes, often at a higher interest rate than the buyer pays.
Weaker suppliers fail. Small firms have the least access to credit; long or late payment can turn a profitable supplier into an insolvent one, taking a source of supply with it.
Customer status drops. Suppliers allocate capacity, innovation and attention to the customers who pay reliably. The buyer that pays slowest is first to be cut when supply is short.
Legal and reputational exposure. Statutory interest, compensation, fines where they exist, and published payment data all raise the cost of paying late.

Setting terms: a practical method

Start from the law. Set a default that is within the legal maximum everywhere you buy, and treat any longer term as an exception that needs a documented justification.
Segment suppliers. Shorter terms for small businesses and for strategic suppliers whose health matters to you; standard terms for the rest. Some organisations commit publicly to paying small suppliers faster.
Fix the trigger. State clearly whether the clock runs from the invoice date or from receipt, and what makes an invoice valid (purchase order number, delivery reference, correct entity). Disputes over invalid invoices are the most common cause of late payment.
Match your process to your promise. If approval routinely takes three weeks, net 30 will be missed. Measure the cycle from invoice receipt to payment and remove the steps that add delay, such as manual matching or approvals by people who are often away.
Negotiate terms openly. Payment terms are a legitimate variable in a negotiation, traded against price or service, but changing them by policy letter without agreement damages trust. See negotiation basics for how to trade concessions.
Measure and publish internally. Track the share of invoices paid on time and the average days to pay, by business unit and supplier segment, and include payment performance in the relationship review alongside the supplier's own scorecard.

Checklist

Default term within the legal maximum in every country you buy from?
Trigger date and invoice validity rules written into contracts and purchase orders?
Invoice-to-payment cycle measured, and shorter than the term?
Small and strategic suppliers on shorter terms?
Early payment discounts evaluated with their annualised cost?
On-time payment rate reported to management, and disputes resolved within a set time?

Sources

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions, EUR-Lex.
European Commission, Proposal for a Regulation on combating late payment in commercial transactions, 12 September 2023; procedure 2023/0323(COD).
France, Code de commerce, articles L441-10 and L441-16 (Légifrance).
UK Government, Late commercial payments: charging interest and debt recovery, gov.uk guidance.
Late Payment of Commercial Debts (Interest) Act 1998; Reporting on Payment Practices and Performance Regulations 2017 (legislation.gov.uk).
UK Parliament, Commercial Payments Bill [HL], Session 2026-27 (bills.parliament.uk).
International Accounting Standards Board, Supplier Finance Arrangements (amendments to IAS 7 and IFRS 7), May 2023.