Industry leaders have welcomed new rules to tackle the late payment culture towards SMEs and the wider supply chain that will see invoice payment waiting times slashed to 30 days.

The news comes as an overhaul of the Prompt Payment Code (PPC) to crack down on delayed invoices owed to small businesses was announced by the UK government this week (19/1/21).

Under new reforms, companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days - half the time outlined in the current code.

Despite almost 3,000 companies signing the current code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. Currently, say ministers, £23.4bn worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.

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

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.

Paul Scully, small business minister, said: “Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK. 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.”

Hannah Vickers, Association for Consultancy and Engineering chief executive, welcomed the PPC changes. She said: “We have long campaigned for reform of the payment culture in this country, and our members will be delighted with today’s news which is a positive step in the right direction. While we will, of course, need to wait to see how effective these changes are in practice, it represents the right shift in tone on a crucial issue for SMEs. To put it bluntly, they cannot be expected to help society bounce back from the pandemic if they are spending most of their time chasing payments owed to them.

“We will be closely monitoring the impact of these new measures over the coming weeks and months, but it is vital that as much money as possible is flowing through the supply chain at this critical moment in time, and today’s announcements will hopefully ensure that this is the case.”

Philip King, interim small business commissioner, 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. 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.”

Mike Cherry, Federation of Small Businesses (FSB) national chairman, said: “A late payment crisis was massively stifling the UK economy before Covid hit. The pandemic has deepened it. It’s now time for swift delivery, and for all existing and future PPC signatories to implement 30 days as the new maximum. Ending our pernicious poor payment culture for good over the coming months will be fundamental to turning our hopes of economic recovery into reality.”

Matthew Fell, the Confederation of British Industry’s chief UK policy director, said: “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.”