New rules could stop businesses applying for government contracts

27/09/2019

For organisations hoping to do business with government departments, the Prompt Payment Code will now require 95% of all supply chain invoices to be paid within 60 days.

The new rules, which came into effect at the beginning of this month, should encourage suppliers to comply to the payment terms. Any organisation that bids for a central government contract that exceeds £5m a year will be affected.

When bidding for these contracts, organisations could be asked to share details of how suppliers will be paid on time along with details of their past payment performance. If the required standards are not met, they will be asked to show evidence of a plan to improve before any contracts are awarded.

These new rules are being implemented in addition to the Reporting in Payment Practices and Performance Regulations 2017, that require large businesses to publish their payment performance.

Also announced this year are the government’s proposed new powers for the Small Business Commissioner, to tackle late payments through fines and binding payment plans. The new proposal will also mark the first time that company boards will be able to be held accountable for supply chain payment practices.

However, a number of organisations have openly criticised these measures with concerns of a lack of impact on late payment practices.

Many small businesses and organisations are in support of The Association of Accounting Technicians’ (AAT) recommendation that it be mandatory for any organisation employing more than 250 people to sign the Prompt Payment Code, which is administered by the Chartered Institute of Credit Management (CICM).

Their Chief Executive, Philip King, cautiously welcomed the government’s latest call for evidence in tackling late payment. But he warned that any potential fines and sanctions for those that fail to comply with the new proposals will need further consultation, especially with regards to the enforcement of any punishments.

He said: “Much of what is included in the document from the Department for Business, Energy and Industrial Strategy (BEIS) is aspirational, and while those aspirations should be welcomed, it will be the detail that is now important.”

While it is clear there is still a way to go when it comes to tackling late payments, the latest measure marks a step in the right direction, which can hopefully help to alleviate late payment worries from many of the UK’s small businesses.

If your business is being threatened by late payments, we can help you to collect the invoices you’re owed. Get in touch or call us on 0800 9774848 to discuss your options.