Late Payment Reforms Slash Small Business Payments Time

AN OVERHAUL OF the Prompt Payment Code (PPC) to crack down on late payments owed to small businesses has been announced by the government today.

Under new reforms, companies that have signed up to the Prompt Payment Code will have 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. They will have to acknowledge that suppliers can charge interest on late invoices under the Code and that breaches will be investigated.

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

James Talman CEO NFRC

Chief Executive of the National Federation of Roofing Contractors, James Talman, said, “The requirement for signatories of the Prompt Payment Code to pay 95 per cent of invoices from small businesses within 30 days is extremely welcome.

“The Covid-19 pandemic has slowed down payment to specialist contractors even further with one our members waiting up to four months for payment from one client last year. It is now essential that the Prompt Payment Code is effectively enforced, so that today’s announcement proves to be more than just good intentions.”

30 Day Payments to Small Businesses

PPC signatories will have to agree to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days, effective from 1 July 2021. The target for larger businesses will remain 95% of invoices within 60 days.

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 include legally binding payment orders, launching investigations and levying fines.

Small Business Minister Paul Scully said:“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.”

Business Damage

According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments, damaging Britain’s prosperity and threatening jobs.

Small businesses account for two-thirds of UK private sector employment and more than half of business turnover.

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 aim 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.

Prompt Payment Code II

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

Mike Cherry, National Chairman, Federation of Small Businesses

Federation of Small Businesses (FSB) National Chairman, Mike Cherry, said: “A late payment crisis was massively stifling the UK economy before Covid hit. The pandemic has deepened it.

“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.

Hannah Vickers, Chief Executive of the Association for Consultancy and Engineering

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.

Hannah Vickers, Chief Executive of the Association for Consultancy and Engineering (ACE) comments: “We will be closely monitoring the impact of these new measures over the coming weeks and months, but it is vital that as much money as possible is flowing through the supply chain at this critical moment in time, and today’s announcements will hopefully ensure that this is the case.”

>> Read more about late payments in the news