Prompt Payment Code strengthened to help tackle late payment

25/01/2021

The Prompt Payment Code (PPC) has been strengthened to crack down on delayed payments owed to small businesses.

The reforms announced last week (19th January 2021) encourage companies to stand by smaller suppliers by paying on time, at a critical time for the UK’s economic recovery.

Interim Small Business Commissioner Philip King said: “Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic.

“Code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence. I encourage businesses of all sizes to implement ethical business practices and sign up to become a Code signatory and join us on our journey to aid business recovery post COVID-19.”

The PPC, first established in 2008, aims to encourage and promote best practice between organisations and their suppliers. It currently has almost 3,000 signatories who commit to paying their suppliers within clearly defined terms.

Yet poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices.

Currently, £23.4 billion worth of late invoices are owed to firms across Britain. And, according to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments.

So, what is changing?

Under the new tougher rules, businesses owners, Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledging that suppliers can charge interest on late invoices under the Code and that breaches will be investigated.

This change, which comes into effect immediately, aims to ensure responsibility for payment practices is taken at the highest level of an organisation.

As well as this, from 1st July 2021 signatories will be obliged to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days. This is half the time outlined in the current Code. The target for larger businesses will remain 95% of invoices within 60 days.

In an effort for businesses to take personal responsibility, signatories will be given a new logo for their external communications. It is hoped that this public commitment to the code will make it more damaging for companies to breach it. 

Breaches will continue to be publicised by the government in order to encourage compliance.

A record of signatories and struck-off companies can be found on the Small Business Commissioner website.

Small Business Minister Paul Scully said: “By signing up to the Prompt Payment Code and sticking to its rules, large firms can help Britain to build back better, protecting the jobs, innovation and growth which small businesses drive right across the UK.”

Industry leaders welcome new rules

The changes to the PPC have been welcomed by industry leaders across the UK.

Federation of Small Businesses (FSB) National Chairman, Mike Cherry, welcomed the progress and called for swift delivery.

He said: “A late payment crisis was massively stifling the UK economy before COVID hit. The pandemic has deepened it.

“Ending our pernicious poor payment culture for good over the coming months will be fundamental to turning our hopes of economic recovery into reality.”

As well as this, the Confederation of British Industry’s Chief UK Policy Director, Matthew Fell, said: “Small companies are the backbone of the economy, but remain the most at risk from a late or unpaid invoice – particularly after months of pressure on cash flow. Businesses have been making good progress to improve payment practices, but more can be done.

“Introducing new rules to drive faster payments to smaller businesses will strengthen supply chains, benefiting the firms that need it most, and shortening the road to recovery.”

More changes to come

The strengthened Prompt Payment Code comes as the government looks to increase powers of the Small Business Commissioner to protect jobs and growth as we build back better from the pandemic.

New powers proposed in a recently closed consultation include legally binding payment orders, launching investigations and levying fines.

The government will publish consultation responses and take forward proposed reforms in due course.

What do you think? Will the strengthened Prompt Payment Code help tackle the late payment culture in Britain? Share your thoughts in the comments below.