Each institution will have its own policy for paying invoices and this will normally only be after the receipt of the correct goods and services. There is a legal requirement, under both the Public Contract Regulations 2015 and the Late Payment of Commercial Debts Regulations 2013 to pay suppliers within 30 days of valid and undisputed invoices. The supplier is entitled to charge interest on outstanding amounts due beyond the 30 day payment period as set out in the Late Payment legislation.
There may be circumstances in which it may be advantageous to make an earlier payment of part of the amount due.
Making advance payments (for example, a 20% payment with order) can put the institution's funds at risk and there is often very little chance of recovering the money if the supplier becomes subject to receivership or liquidation. Here there is no linkage with performance or potential transfer of ownership rights on making the payment. The best protection for the institution is to ask for a Banker's Guarantee to cover the requested amount. The guarantee will remain valid until the supply of the goods or services has been completed and will ensure a full refund of monies paid in the event of non-performance of the contract.
Progress related or stage payments
Alternatively, it may be advantageous to make progress related payments that are linked to pre-determined milestones within, for example, larger projects such as building contracts. Here payment is tied to the demonstrable achievement of agreed milestones. These should be truly representative of progress being made by the supplier and the amounts agreed against the milestones should be a genuine reflection of the supplier's expenditure to the relevant point in the programme. The milestone descriptions and amounts should be agreed prior to awarding the contract. A Banker's Guarantee, in the form of a performance bond, can be demanded against each payment or a 'Certificate of Vesting' required which, under the official seal of the supplier, vests the property of the work carried out by the supplier to the ownership of the institution.
In some procurement exercises, it is standard practice to hold back a sum (a retention) to maintain at least some incentive to ensure the contract’s completion. The value of the retention should be a significant amount (usually in the region of 10 - 15%) and held back until the end the buyer is satisfied with the goods or services provided.