Government-backed Prompt Payment Code set to implement “fairer payment practices”

Our current “late payment culture” was highlighted in a recent Simon Brooke article, where he explained that “Late payment by suppliers is a constant challenge for SMEs. The recent news that Diageo could take up to three months to pay its bills has only served to highlight the issue.”

But now the government has stepped in to help solve the problem. And unless signatories can prove exceptional circumstances for late payment, businesses will be removed from the Code.

Some of the new principles include paying suppliers within a specified timeframe and communicating with them effectively. And, as it remains voluntary, businesses will be actively encouraged to start complying with the strengthened Prompt Payment Code in the coming weeks.

So far, 1,700 businesses and public authorities have committed to these principles.

Miles Gabriel, spokesperson for the Prompt Payment Advisory board, said: “We know how important small businesses are to the UK economy and how critical prompt payment is to their cash flow. Action to strengthen the Prompt Payment Code will come as welcome news to the entire UK business supply chain.

“While it remains voluntary, it gives businesses the opportunity to advertise concern for their suppliers’ welfare and distinguish themselves from their competitors. This creates a commercial advantage for businesses that improve their payment terms, over those that are benefiting from imposing unreasonably long terms at the expense of their suppliers.”

Read more about late payment:

• We need to combat “entrenched late payment culture”
• Report late payment data in annual accounts, says CBI
• Late payment costs SMEs dearly – but its didn’t adversely affect cash flow

Essentially, the Code will promote 30-day terms as standard, with a 60-day maximum limit and it will be ruled with an iron fist by the Code Compliance Board. These people, all from business representative bodies, will investigate any challenges made against signatories to the Code by their suppliers.

Philip King, CEO of the CICM, said: “The Prompt Payment Code has had a significant impact in challenging payment practices and creating a debate and dialogue around the behaviour and culture of late payment that did not previously exist – a fact borne out in the recent joint CICM/BIS survey.

“The 60-day maximum is also to be welcomed, and the decision of the Advisory Board is an indication of how far the debate and sentiment has moved since the Code was launched, leading to a recognition that ethical treatment of the supply chain should be an imperative.”

The board will be able to use the data being made available through the tougher reporting laws in the Small Business, Enterprise and Employment Bill, which will enable them to review the status of signatories and challenge those that either do not pay their suppliers promptly or insist on excessively long standard terms.

“Making small businesses wait an unreasonable time for payment is entirely unacceptable,” Hancock said. “I know first-hand the great burden that late payment can place on firms – and how it can strain family finances – which is why I am committed to stopping it.

“Big companies should lead by example and pay small suppliers within 30 days. I have already written to the FTSE 350 urging them to sign up to the Prompt Payment Code.

“Fairer payment practices will help small businesses grow and create jobs. This is a key part of our long-term economic plan to build a better Britain.”

By Shané Schutte

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