An overhaul of the Prompt Payment Code (PPC) to crack down on delayed invoices owed to small businesses has been announced by the government today (19 January).

Under new reforms, companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days – half the time outlined in the current Code.

Despite almost 3,000 companies signing the Code, 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, impacting on businesses’ cash flow and ultimate survival.

To help tackle the problem, 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. Those signed up to the Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the government in order to encourage compliance.

The move comes as the government seeks to strengthen the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller partners on time. New powers proposed in a recently closed consultation include legally binding payment orders, launching investigations and levying fines.

Small Business Minister Paul Scully said:

Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK.

Today, we are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime – pushing big businesses to pay their suppliers on time.

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.

Late payment continues to blight the construction sector with many main contractors reporting greater than 30% of invoices not paid within terms. Late payments impact their bottom line, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures.  The reforms aspire to help to build a culture of prompt payment between companies and challenge UK businesses to change their practices and stand by small partners at a critical time for the UK’s economic recovery.

The changes coming into effect immediately are:

  • requiring a company’s CEO or Finance Director, or the business owner where it is a small business, to personally sign the Code to ensure responsibility for payment practices is taken at the highest level of an organisation
  • introducing a new logo for signatories to use in external communications to show their commitment to the Code, making it more damaging to a company’s reputation to breach it
  • acknowledgement as a condition of signing the Code that suppliers can charge interest on late invoices
  • enabling administrators of the Code to investigate breaches based on third-party information

In addition, the new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days will be effective from 1 July 2021. The target for larger businesses will remain 95% of invoices within 60 days.

The PPC currently has over 2,800 signatories, who are required to pay 95% of their invoices within 60 days or else be publicly struck off the Code until substantial changes to their payment practices have been made.

FIS CEO Iain McIlwee said:

Ultimately anything that puts further pressure on companies to pay is good, but let’s not kid ourselves that this is anywhere near enough.  We have seen companies topping the league of contract awards whilst suspended from the Code and underhand tactics such as no December payments built into contracts to massage working capital figures.  We also know that late payment is just one tool in the box of the unscrupulous – how much time is wasted and angst caused whilst we quibble over tiny amounts as a thinly veiled excuse to withhold larger sums or companies imposing spurious penalties ostensibly because of a delay caused by the sub-contractor, but more typically because of poor programming.

Payment malpractices remain a cancer at the core of construction and until we really, wholesale, buy into the principles set down in the Construction Playbook and track payment within contracts, impose new tools like project bank accounts and scrap outmoded cash retentions through our “standard” contracts and stop rewarding those who choke the supply chain of vital cash with contracts, we won’t see the profound change and with it the modernisation of construction that we are all working towards.

When a company is struck off the Code for poor practice, this is publicly announced by the Small Business Commissioner’s Office. A record of signatories and struck-off companies is maintained on the Prompt Payment Code and SBC websites.

You can check any large companies payment terms here.