An overhaul of the Prompt Payment Code (PPC) to tackle delayed invoices owed to small businesses has been announced by the UK government.
Under the new reforms, companies that have signed up to the PPC will be required to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days, effective from 1 July 2021; the target for larger businesses will remain 95% of invoices within 60 days – the current time outlined in the Code.
The UK government says £23.4 billion worth of late invoices are currently owed to companies across Britain, impacting on businesses’ cash flow and ultimate survival.
The reforms coming into immediate effect require a company’s CEO or finance director (or the owner, if it’s a small business) to personally sign the PPC to ensure responsibility for payment practices is taken at the highest level of an organisation, and they should acknowledge that suppliers can charge interest on late invoices as a condition of signing the Code.
Administrators of the PPC are also now able to investigate breaches of the Code based on third-party information, and a new logo has been introduced for signatories to use in external communications to show their commitment to the PPC, making it more damaging to a company’s reputation to breach it.
The PPC currently has over 2,800 signatories, who are required to pay 95% of their invoices within 60 days or else be publicly struck off the Code until substantial changes to their payment practices have been made.
According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments. Mike Cherry, national chairman of the FSB, commented: “A late payment crisis was massively stifling the UK economy before Covid-19 hit, and the pandemic has deepened it.
“FSB has campaigned for good payment practice to become the norm across the UK economy, not least through a toughening of the Prompt Payment Code and the adoption of 30 days as the new maximum payment period.
“It’s good to see the progress announced by Department for Business, Energy and Industrial Strategy. 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.”
The Confederation of British Industry’s chief UK policy director, Matthew Fell, added: “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.”