Prompt Payment Code – there to help SMEs

There are lots of benefits for a small business that supplies a client with a household name. Working for these big firms give your business extra credibility and can generate lots of positive publicity. It can also make it easier to win over other major firms. However, one big drawback is that many huge businesses are notoriously slow at settling invoices. Some insist on payment terms of three months or more, posing major cashflow problems for SME suppliers. For this reason, in the last year the government proceeded to strengthen the Prompt Payment Code (PPC).

What is the Prompt Payment Code?

The Prompt Payment Code is a voluntary code of practice for businesses. Set up in 2008, it exists to set standards for payment practices between organisations and their suppliers. It is run by the Office of the Small Business Commissioner on behalf of the Department for Business, Energy and Industrial Strategy.

Organisations that sign up to the Code undertake to pay suppliers on time. They also agree to give suppliers clear guidance on terms, dispute resolution and prompt notification of late payment. They also commit to encourage adoption of the Code throughout their supply chain.

Until July 2021, Prompt Payment Code members had to pay 95% of invoices within 60 days. They also had to ‘work towards’ making 30 days the norm for payment.

What is the situation now?

Companies that have signed up to the Prompt Payment Code must now pay small businesses within 30 days. The change came into effect on 1st July 2021. The definition of a small business is one with under 50 employees. Action is necessary because “£23.4 billion worth of late invoices are [currently] owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.”

There were also other changes to the scheme. CEOs or Finance Directors now have to take personal responsibility by signing the Code. By doing so, they acknowledge that suppliers can charge interest on late invoices. Importantly, investigations of breaches can now be based on third-party information.

The 30-day rule, however, does not apply to all businesses. If a supplier has more than 50 employees, Code signatories commit to paying them within 60 days.

What sanctions does the Prompt Payment Code enforce?

Given that the Prompt Payment Code is a voluntary scheme, it has limited sanctions. The main sanction is suspension from the scheme. The Office of the Small Business Commissioner publishes suspended companies’ names on its website. For example, the PPC suspended eleven businesses – including Shell UK Limited – in January 2020.

However, the negative publicity that comes from being suspended does seem to make big companies act. In the same month, the PPC reinstated 14 businesses to the Code – including British Sugar Plc and Vodafone Limited.

How many companies have signed the Code?

Currently, over 2,000 firms are signed up to the code. Approved signatories can use a new logo on their external communications. There are other benefits too: small businesses are likely to give more favourable pricing and service if they know they will be paid in time.

My invoice payments are late. What can I do?

If you haven’t been paid within 30 days by a Prompt Payment Code signatory, you can make a complaint to the Small Business Commissioner.

However, if late payment is a persistent problem for your business, you may want to outsource your credit control to THP. Our team of credit controllers are members of the Chartered Institute of Credit Management. They can help you automate your credit control, set up payment terms, undertake credit checks and analyse bad debts. To learn more, please get in touch using the form below.