Small businesses promised 30-day terms as payment code tightened

Under new reforms, companies that have signed up to the Prompt Payment Code (PPC) will have to pay supplier that have fewer than 50 employees within 30 days – half the time outlined in the current code.

Despite almost 3,000 companies signing the PPC, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices.

According to the small business commissioner, who oversees the PPC, £23.4bn worth of late invoices are currently owed to firms across Britain.

To help tackle the problem, businesses owners, finance directors or chief executives will be required to take personal responsibility by signing the code, acknowledge that suppliers can charge interest on late invoices under the code and that breaches will be investigated.

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.

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.”

Related Information

The changes coming into effect immediately include:

  • Requiring a company’s CEO or finance director, or the business owner where it is a small business, to sign the code personally to ensure responsibility for payment practices is taken at the highest level of an organisation
  • 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 1st July 2021. The target for larger businesses will remain 95% of invoices within 60 days.

Interim small business commissioner Philip King 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. Code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence. 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.”

The Confederation of British Industry’s chief UK policy director Matthew Fell said: “Covid-19 has once again highlighted the importance of maintaining healthy supply chains. Small companies are the backbone of the economy, but remain the most at risk from a late or unpaid invoice – particularly after months of pressure on cashflow. Businesses have been making good progress to improve payment practices, but more can be done.

“Introducing new rules to drive faster payments to smaller businesses will strengthen supply chains, benefiting the firms that need it most, and shortening the road to recovery.”

Business secretary Kwasi Kwarteng said: “If you deliver quality goods or services on time, you should expect to be paid on time. Unfortunately, this basic principle of good business is not always respected by bigger firms, jeopardising the survival of thousands of smaller suppliers and the millions of jobs they support.

“This is bad for business, bad for jobs and bad for the wellbeing of hardworking business owners and their families at a time when they need all the help they can get.”

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