Government tackles late payments to businesses to protect jobs

An overhaul of the Prompt Payment Code to crack down on delayed invoices owed to small businesses has been announced by the government today.

Under new reforms, companies that have signed up to the Prompt Payment Code (PPC) will be obliged to pay small businesses within 30 days – half the time outlined in the current Code.

Despite almost 3,000 companies signing the Code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. Currently, £23.4bn worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.

To help tackle the problem, businesses owners, Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledge that suppliers can charge interest on late invoices under the Code and that breaches will be investigated. Those signed up to the Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the government in order to encourage compliance.

The move comes as the government seeks to strengthen the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller partners on time. New powers proposed in a recently closed consultation include legally binding payment orders, launching investigations and levying fines.

Small Business Minister Paul Scully 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.”

Small businesses account for two-thirds of UK private sector employment and more than half of business turnover. Late payments impact their bottom line, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures.

In addition, the new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days will be effective from 1 July 2021. The target for larger businesses will remain 95% of invoices within 60 days.

Industry reaction

FSB National Chairman Mike Cherry said:

“A late payment crisis was massively stifling the UK economy before Covid hit. 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 today by BEIS and especially the outgoing Small Business Commissioner that has driven this agenda. 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 said: “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.”

MD of Xero UK, Gary Turner, said: “In an age where we can use our thumbprint or a selfie to pay instantly, how is it still acceptable that large businesses pay suppliers months later?

We support the measures the government is taking to enhance the prompt payment code, but this should be the first step in a longer cultural shift.

If we’re going to rebuild the economy, small businesses must be able to have and use money that’s already theirs. We’ve been calling on the government for a ‘fair buyers bill’ to stop corporates increasing payment terms. 30 days should be the maximum standard for payment terms. Yet in the last year, 59% of small business owners said that corporate customers increased the length of their payment terms.

This is the next ethical issue corporates need to address. Poor cash flow is the number one reason that businesses fail, and this is often tied up in late payments.

After a devastating year any moves to treat small firms more fairly should be welcomed.”