Government gets tough on late payers

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Date: 19 January 2021

Hanging files filled with overdue invoices

Companies will have to pay smaller suppliers within 30 days under the new terms of the Prompt Payment Code as the government seeks to crack down on late payment.

The government has announced reforms to the Prompt Payment Code, cutting by half the required payment period for companies paying smaller suppliers. Under the new rules, signatories will have to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days from 1 July 2021. The target for larger businesses will remain 95% of invoices within 60 days.

Despite the fact that almost 3,000 companies have already signed the code, the government says that poor payment practices are still rife. It means that £23.4 billion worth of late invoices are currently owed to firms across Britain. According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year because of late payments.

Under the reformed code, business leaders will be required to take personal responsibility for paying suppliers on time. Breaches will continue to be publicised by the government in order to encourage compliance. The government is also seeking to strengthen the powers of the Small Business Commissioner, with legally binding payment orders, investigations and fines.

Small business minister Paul Scully said: "Today, we are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime - pushing big businesses to pay their suppliers on time. 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."

The changes coming into effect immediately are:

  • A company's ceo or finance director, or the business owner, must personally sign the Prompt Payment Code;
  • A new PPC logo must be used in external communications to show a company's commitment to the code, making it more damaging to a company's reputation to breach it;
  • Firms must acknowledge as a condition of signing the code that suppliers can charge interest on late invoices.

"Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic," said interim small business commissioner Philip King. "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, FSB national chair, said: "A late payment crisis was massively stifling the UK economy before COVID hit. The pandemic has deepened it … 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 Prompt Payment Code currently has over 2,800 signatories. When a company is struck off the code for poor practice, this is publicly announced by the Small Business Commissioner's Office.

Written by Rachel Miller.

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