Under reforms to the Prompt Payment Code (PPC), the required payment period for larger suppliers to small businesses is to be halved to 30 days, with commitments to be made personally by CEOs or finance directors
The overhaul follows research showing that despite almost 3,000 companies signing the PPC, poor payment practices are still rife, with many payments delayed well beyond the existing 60-day target required for 95% of invoices.
Currently, £23.4bn worth of late invoices are owed to firms across Britain, which the government says is impacting on businesses’ cash flow and ultimate survival post-Covid. Federation of Small Businesses (FSB) figures suggest around 50,000 businesses close every year due to late payments.
The changes coming into effect immediately require a company’s CEO or finance director, or the business owner where it is a small business, to personally sign the PPC to ensure responsibility for payment practices is taken at the highest level of an organisation.
There is a new logo for signatories to use in external communications to show their commitment to the PCC, making it more damaging to a company’s reputation to breach it.
Signatories must acknowledge as a condition of signing the code that suppliers can charge interest on late invoices, and that administrators of the PPC to investigate breaches based on third-party information.
In addition, from 1 July there is a new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days. The target for larger businesses will remain 95% of invoices within 60 days.
Philip King, interim small business commissioner, 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. ‘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.’
Mike Cherry, FSB national chairman, said: ‘It’s good to see the progress announced today by BEIS and especially the outgoing Small Business Commissioner that has driven this agenda.
‘It’s now time for swift delivery, and for all existing and future PPC signatories to implement 30 days as the new maximum. Ending our pernicious poor payment culture for good over the coming months will be fundamental to turning our hopes of economic recovery into reality.’
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.
When a company is struck off 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 PPC and Small Business Commissioner websites.
Iain Wright, director of business and industrial strategy at ICAEW, said: 'This is a big step in the right direction to help change attitudes towards late payments at a time when resources are tight for businesses of all sizes.
‘Far from being a victimless act, the failure of large businesses to pay smaller suppliers in a prompt fashion jeopardises the survival of many companies, putting at risk livelihoods and jobs.
'This revision to the Prompt Payment Code, alongside proposed increased powers for the Small Business Commissioner, shows that the government is serious about tackling the problem of late payments. We need all businesses to understand the value of prompt payment.'