UK Government Overhauling Prompt Payment Code

It was announced last week that the UK Government is overhauling the Prompt Payment Code in a bid to tackle late payments made from large businesses to their smaller suppliers. The government hopes this reform will go some way to protecting jobs and helping to rebuild the economy as a result of the COVID-19 pandemic.

The new reforms will mean that companies who have signed up to the Code will now have to pay small businesses (classed as those with 50 employees or less) within 30 days, a 50% reduction from the current guidelines.

Some 3,000 companies have elected to sign up to the Code since its inception, but the late payment problem is widespread across all industries. The government estimates that £23.4 billion of cash is tied up in unpaid invoices across Britain, with many invoices still classed as outstanding long after the current 60-day payment window. 

Business Owners, Finance Directors or CEOs will be ultimately responsible for abiding by the Prompt Payment Code if their firm signs up and will agree that suppliers will be allowed to charge interest on any invoices that are overdue. There must be a conscious effort made to ensure that firms comply as breaches will be investigated and publicised by the government.

To go hand in hand with the Prompt Payment Code, the government is looking to strengthen the powers of the Small Business Commissioner enabling the organisation to help small businesses get paid quicker, with legally binding payment orders, investigations and fines.

The Federation of Small Businesses estimates that around 50,000 business fail each year due to late payments, which will directly impact their cash flow and ability to pay off their own overheads such as rent, wages and their own suppliers.

The main changes that will come into effect as a result of the reforms are:

  • A Business Owner, CEO or Finance Director will personally sign the Code and take responsibility for payment practices at the highest level.
  • A logo will be available for those that have signed the Code which can be used to show their commitment.
  • Signatories will acknowledge that suppliers are able to charge interest on late invoices.
  • Administrators of the Code will be able to investigate and publicise breaches.

The reduction of payment days from 60 to 30 for 95% of payments made by large businesses to smaller businesses will come into force from 1st July 2021. Invoice payments between larger businesses will stay at a target of 60 days.

The Business Secretary, Kwasi Kwarteng, said in the government’s announcement regarding the latest reforms, “As Business Secretary, I want to see more large companies signing up to our strengthened Prompt Payment Code. But be under no doubt – I am also determined to bolster the role of the Small Business Commissioner with powers to issue legally binding payment orders, launch investigations and levy fines if needs be.

“With these vital reforms, we can transform the UK’s business payment culture to build back better in 2021 and support the jobs, investment and growth we need to recover from the pandemic.”

Sean Husband, Director of My Debt Recovery, welcomed the news of the Prompt Payment Code Reform: “It’s encouraging to see that despite the economic downturn caused by the coronavirus pandemic, the UK government are overhauling the Prompt Payment Code to tackle late payments and that they are being mindful of small businesses and the part that they will play in the country’s recovery. We see first hand how much a huge blow late payments are to SMEs and will often be cited as one of the main contributing factors to a business having to close. The consultation for the increase of powers that the Small Business Commissioner holds has now come to a close and we are looking forward to seeing what the outcome of that will be.”.

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