Working out the credit period

The credit period that applies to the contract is:

1. Whatever has been agreed in the contract between supplier and customer. There is however a proviso that this period must be reasonable.

The parties are free to agree any credit period that they wish. However, the legislation requires that this be 'reasonable'. A clause added by the purchaser that set a very long period of credit might well be considered unreasonable. If it were considered unreasonable then the default period of thirty days applies instead.

2. Otherwise, whatever is the norm for that business sector or has been the established convention.

The Act recognises that many businesses have a long-standing practice of paying/being paid at the end of the month following the one in which the invoice was produced (effectively betwen 30 and 60 days credit). In this case the credit period is as per this convention.

3. If neither 1 or 2 apply, and no credit period has been specified then it defaults to thirty days.

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