Businesses owners, Finance Directors and CEOs will be required to take personal responsibility by signing the Prompt Payment Code. Breaches will be investigated and made public.
The UK government’s Prompt Payment Code has been revised in favour of better payment terms for small businesses. Companies will soon be obliged to pay small businesses within 30 days – half the time outlined in the current Code.
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.
- Government to strengthen Prompt Payment Code, ensuring larger companies pay their suppliers on time
- Required payment period to small businesses slashed in half to 30 days, with commitments to be made personally by CEOs or Finance Directors
- 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.
- Tougher rules come as the government looks to increase powers of the Small Business Commissioner to protect jobs and growth
- Today, the UK has £23.4 billion worth of late invoices owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.
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.
“If you deliver quality goods or services on time, you should expect to be paid on time,” said Business Secretary Kwasi Kwarteng. “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.”
Close to 3,000 companies have signed the code, which is a sign of how many more will have to sign the code to address poor payment practices and to save their commercial reputation. Many payments are delayed beyond the current 60-day target required for 95% of invoices. This behaviour has been exacerbated by the pandemic.
“Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic,” said Interim Small Business Commissioner Philip King.
King said that code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence. He also encouraged businesses of all sizes to implement ethical business practices and sign up to become a Code signatory.
“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,” said Small Business Minister Paul Scully.
“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,” he said.
“Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK.”Small Business Minister Paul Scully
- 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.
Like this story? Sign up for our newsletter below.