Government cracks down on late payment culture
20 January 2021: Signatories to the UK government’s Prompt Payment Code must pay small businesses within 30 days as part of a raft of measures taken to tackle the ongoing issue of late payments
The UK government has toughened up its Prompt Payment Code and plans to strengthen the hand of the Small Business Commissioner as part of a crackdown on delayed invoices owed to small businesses.
Effective from 1 July 2021, the code contains a new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days – slashing the time outlined in the current code by half. The target for larger businesses will remain 95% of invoices within 60 days.
From yesterday (19 January 2021), finance directors, CEOs or businesses owners (where it is a small business), must also take responsibility by personally signing the code and acknowledging that under its terms, suppliers can charge interest on late invoices and that breaches will be investigated by administrators of the code.
Breaches to the code will continue to be published on the Prompt Payment Code and Small Business Commissioner websites to encourage compliance.
Alongside these measures, the government is also seeking to reinforce the powers of the Small Business Commissioner to ensure larger companies pay their smaller suppliers on time. A recent consultation on increasing the scope of the role sought views on whether the government should grant the power to issue legally binding payment orders, launch investigations and levy fines. In a statement, the government said it will “publish responses to the consultation and take forward proposed reforms in due course”.
‘A big step in the right direction’
Iain Wright, Director for Business and Industrial Strategy at ICAEW, called the reforms “a big step in the right direction to help change attitudes towards late payments at a time when resources are tight for businesses of all sizes.
“Far from being a victimless act, the failure of large businesses to pay smaller suppliers promptly jeopardises the survival of many companies, putting at risk livelihoods and jobs,” continued Wright.
A representative from one business affected by the moves who spoke with ICAEW was a little more circumspect on potentially committing to pay suppliers within 30 days.
“International norms need to be considered when applying the rules to large international companies, particularly in their agreements with other multinationals,” they commented. “The international competitiveness of the UK could be affected by restricting payment terms used in these negotiations.
“If the target is moved it should be done so incrementally, for example first moving to 50 days before further reductions are put in place.”
Despite more than 2,800 company signatures on the code, the government highlighted that poor payment practices are still commonplace. In a statement, it said many payments continue to be delayed well beyond the current 60-day target required for 95% of invoices. According to the statement, £23.4bn worth of late invoices are currently owed to firms across Britain, impacting their cashflow and ultimate survival.