02 Feb Strengthening the prompt payment code
According to the FSB (Federation of Small Businesses) some fifty thousand businesses failures each year are caused by late payments. That’s one reason why the prompt payment code was set up in the first place and why the Government is now taking steps to further strengthen the code.
Although voluntary, the code currently has some three thousand signatories drawn from the largest businesses across the UK. Nevertheless the Government considers that late payments are still a major problem for small businesses; particularly in the current climate. Announced on 19th January, the changes to the code are therefore designed to improve accountability and promote a culture of fast payment.
The headline change, which comes into effect from 1 July 2021 requires signatories to the code to pay 95% of invoices from small businesses within thirty days; a halving of the current code limit of sixty days.
Other changes are to take effect immediately. Perhaps the most significant of these is the requirement for the code to be signed by a CEO or Finance Director. This, the government hopes, should help to ensure that payment practices sit firmly at the highest level of an organisation. It could be argued that this is already the case with directors having a legal duty to promote the success of the company. This includes the requirement to foster the business relationship with suppliers and others alongside the maintenance of a reputation for high standards or business conduct. However, promoting success is a wide ranging remit, leaving some issues to be devolved to others. Signing the code may bring payment practices back to the fore with CEOs or FDs taking more responsibility for its implementation.
The other key changes which apply from 19 January are:
- An acknowledgement that by signing the code suppliers can charge interest on late invoices;
- Signatories to the code are to be provided with a logo to be used use in external communications; helping to highlight their commitment to the code;
- Code administrators can now investigate breaches based on third party information.
The strengthened code has received wide approval across business. FSB National Chairman, Mike Cherry, said: “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 CBI’s Chief UK Policy Director, Matthew Fell agreed, commenting that: “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.”