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Reforms made to the Prompt Payment Code

19 January 2021

Reforms made to the Prompt Payment Code

Firstly, what is the Prompt Payment Code (PPC)?

The PPC is a voluntary code of practice for businesses to follow. It is administered by the Office of the Small Business Commissioner on behalf of the department for Business, Energy and Industrial Strategy and has been in place since establishment in 2008. Its purpose is to set standards for payment practices between organisations of any size and their suppliers.

Signatories to this code agree to pay suppliers on time, within agreed terms, give clear guidance to suppliers on terms, dispute resolution and prompt notification of late payment and support good practice throughout their supply chain by encouraging further adoption of the Code.

Find out more about the PPC on its official website, here.

Last year the Small Business Commissioner consulted and contacted all signatories, asking for views on reforming the PPC. Following the success of the survey, an analysis was conducted of which led to changes to the Code. Today the Small Business Commissioner released the changes in a press release of which is overviewed below.

Key change:

  • An additional requirement to pay 95% of invoices from businesses with fewer than 50 employees within 30 days. (no change for the previous requirement of paying 95% of all invoices within 60 days)

The changes to this Code are thought to strengthen it and allow small businesses to have support and get paid swiftly. It also aims to show commitment of signatories of whom, by following this, will be helping to maintain the cash flow of their smallest suppliers. 

Though implementing the new Code, especially meeting the requirement of paying small suppliers within 30 days, may take time, signatories should be proactive and identify businesses with less than 50 employees at the on-boarding stage and through encouraging such businesses to declare employee numbers on invoices. Survey results suggest it taking 3 to 6 months to get systems in place and to identify the small suppliers in the supply chain. To respond to this, current signatories have a transitional period until 1 July 2021, to comply to the new requirement.

All other reforms come into affect with immediate effect:

  • The Chief Executive or Financial Director, or for small businesses, the company owner, should sign or submit the application to join the Code
  • A logo will be provided to existing and new signatories of the Code in a variety of formats. Clear guidance on how and where the logo can be used will be shared. The logo can be used from 19 January
  • The Code requirements are restricted to UK invoices and inter-company transactions are out of scope
  • Compliance will be measured using the Payment Practices Reporting (PPR) data, where appropriate. Where PPR data is not appropriate, an annual declaration – from the Chief Executive, Finance Director or company owner - that the business has met, is meeting and will continue to meet the requirements of the Code will be required
  • The Code administrators will approach signatories to discuss supplier concerns received directly from a supplier, third party or from intelligence received

Prompt Payment Code as of 19 January 2021 requires signatories to:

Pay suppliers on time:

  • by paying 95% of invoices within the agreed payment terms and without attempting to change terms retrospectively
  • by paying 95% of all invoices within 60 days, and 95% of invoices from businesses with fewer than 50 employees within 30 days
  • by acknowledging their right to use late payment legislation to invoice for late payment interest and charges when appropriate

Give clear guidance to suppliers:

  • by providing clear and easily accessible guidance on payment procedures and invoicing requirements at on-boarding stage and on an ongoing basis
  • by ensuring there is a system for dealing with complaints and disputes which is clearly communicated, and providing a contact-point (or online portal) for them to ascertain the status of invoices being processed
  • by advising them immediately if there is any reason why an invoice will not be paid to the agreed terms

Adopt and encourage good practice:

  • by requesting that lead suppliers encourage adoption of the code throughout their own supply chains
  • by using the PPC logo to demonstrate commitment to the Code principles and enhance supplier confidence
  • by avoiding any practices that adversely affect the supply chain

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. 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."

It comes as the Government says payment problems are ''rife'', with the amount of oustanding late invoices estimated to be worth £23.4 billion - made worse due to the impact of the unprecedented pandemic.

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