In December 2024, the UK government announced a change to the existing Prompt Payment Code. The new Fair Payment Code (FPC) aims to further clamp down on late payments to small and medium-sized enterprises and incentivise good payment practices.
We’ll delve into the key differences between the two codes, the most important takeaways for your business and how the new guidelines affect Accounts Payable teams.
What was the Prompt Payment Code?
The Prompt Payment Code (PPC) was a voluntary regulatory framework introduced in 2008 to tackle late payments and help SMEs manage cash flow. Signatories had to pay 95% of invoices within 60 days, with 30 days encouraged for smaller suppliers. Large businesses also had to report payment practices every six months for transparency.
The PPC raised awareness but weak enforcement meant many firms didn’t comply, leading to the stricter Fair Payment Code (FPC) in 2024.
What is the new Fair Payment Code?
The Fair Payment Code replaces the Prompt Payment Code with stricter enforcement and broader scope. It’s a tiered system of awards to drive best practice and improve payment performance.
In 2023, 15% of small businesses and medium sized enterprises cited cash flow and late payments as an obstacle to running their businesses. The Fair Payment Code helps to encourage businesses across the UK to adopt fair and prompt payment practices to businesses and suppliers.
Companies can apply for the award tier that best reflects their payment performance. This tiered system is designed to promote best practices and broadly enhance overall payment efficiency. These are the three award categories:
- Gold Award – for those firms paying at least 95% of all invoices within 30 days
- Silver Award – for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days
- Bronze Award – for those paying at least 95% of all invoices within 60 days
Fair payment practices are crucial because they help maintain cash flow stability, which is particularly important for SMEs that operate on tight margins.
Why are we moving from the PPC to the FPC?
The shift from the Prompt Payment Code (PPC) to the Fair Payment Code (FPC) was largely driven by a new government’s focus on business accountability and SME support.
Growing frustration over large companies missing voluntary payment commitments, combined with continued late payments hurting small businesses, put pressure on policymakers to act. The government saw tougher enforcement as necessary to boost economic stability, protect SMEs and promote fairer business practices.
Key changes under the Fair Payment Code
One of the most significant changes is tightened payment terms. Under the PPC, signatories were expected to pay 95% of invoices within 60 days, with 30 days encouraged as best practice. However, the FPC makes 30-day payments mandatory for SMEs, while the 60-day limit remains for larger suppliers.
Enforcement has also become more stringent. Under the PPC, non-compliant businesses were publicly named and faced potential suspension. The FPC introduces harsher penalties, including fines and possible exclusion from government contracts.
The new code also enhances transparency and reporting. While the PPC required large businesses to report their payment practices every six months, the FPC strengthens this by mandating annual reporting and public disclosure of late payers.
This shift ensures greater accountability and allows businesses to track payment behaviour more effectively.
Is the Fair Payment Code mandatory?
It’s not mandatory. However, it's highly advised by industry leaders, government bodies and business organisations to follow the Fair Payment Code. Adherence helps businesses build stronger relationships with suppliers, maintain a good reputation and avoid potential penalties or restrictions, especially when working with SMEs and government contracts. By ensuring timely payments, 30 days for SMEs and 60 days for larger suppliers, companies can foster trust, improve cash flow management and stay in line with best practices for fair trading.
What are the consequences of breaching the code?
Breaking the code can have serious consequences for businesses, from financial penalties to reputational damage. Companies that don’t follow the rules may face fines and could even be publicly named as late payers, which hurts their ability to build trust with suppliers.
Those who consistently fail to pay on time might also lose access to government contracts, cutting off valuable opportunities. On top of that, businesses can be suspended or removed from the FPC, meaning they miss out on the credibility and benefits that come with being part of the code.
Simply put, sticking to fair payment practices helps businesses maintain good relationships and avoid unnecessary trouble.
What are the fair payment terms?
The idea behind the Fair and Prompt Payment Codes is to make payment agreements clear and transparent and to build trust between businesses. Contracts should specifically lay out payment terms, including due dates or protocols around how to handle disputes. This clear communication helps prevent misunderstandings and ensures everyone knows what’s expected, leading to smoother transactions.
Paying on time and sticking to agreed terms is essential for keeping good business relationships. Companies need to avoid delays or making changes without notice. Being reliable with payments helps maintain a steady cash flow and builds your reputation as a trustworthy partner.
Treating suppliers fairly is just as important. It’s crucial to respect the payment terms you initially agreed on without making sudden changes, deducting payments for delays or imposing unfair penalties.
What the Fair Payment Code means for Accounts Payable teams
For Accounts Payable (AP) teams, the Fair Payment Code means tighter deadlines, more reporting and a bigger reliance on technology to keep everything running smoothly.
With payment terms often locked at 30 to 60 days, AP teams need to move fast when streamlining approvals and paying suppliers on time. On top of that, meeting compliance regulations comes with extra reporting responsibilities, like tracking payment times, invoice dates and disputes under rules like the UK’s Payment Practices and Performance Reporting (PPPR).
Automation can put teams in a better position to meet these demands by speeding up approvals, cutting errors and giving real-time payment insights.
It’s also not just about paying faster. AP teams must balance the new FPC guidelines with their own cash flow management, making sure payments are well-timed to keep the business financially stable, all while staying compliant.
How can AP teams adapt to Fair Payment Code changes?
The key to Fair Payment Code compliance is having clear payment policies, straight forward approval processes and regular checks to ensure everything runs on time.
For AP teams, best practices include automating invoice processing, keeping the lines of communication open with suppliers and having a solid plan for managing any disagreements before they cause delays.
Looking ahead, payment practices will only get stricter and more transparent, with a bigger push toward digital payments and AI-powered automation. Businesses that embrace these changes early will not only stay compliant, but they’ll also build stronger supplier relationships and future-proof their payment processes.