E-11-1 Penalty for Late Payments to Vendors

I. Purpose

To establish University policy for late penalty payments as required by KRS 45.451 to KRS 45.458.

II. Policy

KRS 45.451 to KRS 45.458, enacted by the 1984 General Assembly, states that effective January 1, 1985, the University of Kentucky is required to pay all invoices within thirty (30) business days of the receipt of a satisfactory vendor invoice and satisfactory delivery of goods and services. Additionally, House Bill 480 (HB 480), prompt payment legislation, was enacted during the 2026 legislative session with an effective date of July 15, 2026. This bill amended KRS 45A.035 to include additional requirements, including the imposition of penalties on late payments. 

Per KRS 45.454 and HB 480, failure to pay obligations as required will result in a penalty of one percent of the amount due for each full or partial month that the payment exceeds thirty (30) business days. 

1. Unless otherwise negotiated in a contract, the University has thirty (30) business days after receipt of goods, services, or a properly submitted invoice to make payment to a vendor. If an invoice is not paid within thirty (30) business days, a vendor may submit a written request to the University for the overdue payment plus a one percent (1%) per month late fee penalty.
   1. If goods are incorrect or missing from an invoice, the unit should notify the vendor in writing within fifteen (15) business days from receipt of the invoice. 
   2. When appropriate, the unit should also document PO invoice disputes in SAP through transaction zmm_mrbr_notes.
2. A ten (10) calendar day correction period must be provided to correct any issues with the service or invoice. A new invoice receipt date cannot be created during this correction period. If a vendor fails to resolve any issues in the delivery of a good or service or submit a corrected invoice within the ten (10) calendar day correction period, any re-submitted invoice will be considered a new invoice for calculation of a late payment fee. 
3. The University may issue partial payment for any undisputed amounts on a submitted invoice. The items for which payment is being made must be clearly communicated and the items for which payment is not being made must also be clearly communicated along with the reasoning. 
4. When a one percent (1%) per month penalty is included on a vendor’s invoice and submitted by a unit for payment to the vendor, it will be charged as an operating expense to the responsible organizational unit. Late fees are not allowed to be charged to sponsored projects. If an invoice was paid on a sponsored project, the late fee penalty must be charged to a departmental cost center or Dean’s overrun account. 
5. If a vendor must execute a loan, line of credit, revolving credit, or other financial instrument to continue contract of performance during a period of late payment, they may request that the University pay the cost of interest incurred, which would also be assessed to the unit.

III. Responsibilities 

1. Unit Personnel
   1. Document date goods and services were received;
   2. Notify vendor in writing of any improper performance issues, incorrect items or missing items which would negate the need to pay the penalty. Examples include
      1. Incorrect billing
      2. Damaged goods
      3. Wrong type of goods received
      4. Installation for operability incomplete
      5. Contracted services incomplete or
      6. Inoperable or malfunctioning materials or equipment.
   3. When appropriate, document PO invoice disputes in SAP through transaction zmm_mrbr_notes.
   4. Forward any invoices received by the unit in a timely manner to Accounts Payable Services or process Payment Request Document (PRD) in a timely manner.
2. Accounts Payable Services
   1. Process payment documents in a timely manner;
   2. Include late penalty payment on documents authorized by unit/department; and
   3. Investigate inquiries of late payments by vendors.

IV. Procedures

1. The unit will document the date good and services were received by
   1. Entering the goods receipt for the SRM shopping cart/SAP Purchase Order timely; or
   2. Maintain copies of delivery notices and packing slips demonstrating date of receipt. 
2. The unit will notify vendor in writing of any improper performance issues, incorrect items or missing items.
3. When appropriate, the unit will document PO invoices in disputes in SAP through transaction zmm_mrbr_notes.
4. The unit will notify Accounts Payable Services of authorization for late penalty on Purchase Orders when appropriate by including the late payment penalty on the PRD or by adding an extra line to the PO for the late invoice.