Stricter payment rules to small businesses now in force
Large businesses signed up to the Prompt Payment Code must now pay all small businesses within 30 days – half the time previously required.
The reforms to the Prompt Payment Code (PPC), which were introduced last week (1st July 2021), require all signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days.
The target for paying larger suppliers will remain 95% of invoices within 60 days.
The changes, announced in January, encourage companies to stand by smaller suppliers by paying on time at a critical time for the UK’s economic recovery.
Encouraging best practice
The PPC, first established in 2008, aims to encourage and promote best practice between organisations and their suppliers.
It currently has over 3,000 signatories who commit to paying their suppliers within clearly defined terms.
Yet poor payment practices are still rife.
According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments.
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The changes include:
- Confirming the requirement to pay 95% of invoices within 60 days
- Introducing the requirement that 95% of invoices from small businesses (less than 50 employees) must be paid within 30 days
- Requiring small and medium sized signatories to report annually on their payment performance
- Promoting and strengthening the Code website
- Requiring signatories to recognise the right of suppliers to charge late payment interest
- Applications to join the Code must now be signed by businesses owners, Finance Directors or CEOs
- Suppliers should be provided with a contact point for payment queries
What happens when signatories don’t follow the rules?
Any signatories who do not comply can be suspended or removed from the code.
A record of signatories and struck-off companies can be found on the Small Business Commissioner website.
While the PPC has not suspended any signatories during the pandemic, it is expected to now step up enforcement.
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.