The Prompt Payment Code sets the standard in payment terms and is the driving force in bringing change in payment practices. In 2008, the UK Government established a set of principles under this title to ensure businesses commit to paying their suppliers on time. Since its launch, the amount of money owed to smaller businesses in late payments has more than halved.
What is the Prompt Payment Code?
The Prompt Payment Code is administered on behalf of the Small Business Commissioner’s Office by the Chartered Institute of Credit Management (CICM) and despite being voluntary, to date there are more than 2,500 different signatories. Those that sign, are required to:
1.Pay their suppliers on time and within the terms agreed by the contract. They should not attempt to change the payment terms and length retrospectively.
2. Provide clear guidance to suppliers. This includes offering clear guidance on payment procedures and ensuring there is a system for handling disputes and complaints.
3. Encouraging best practice by asking suppliers to promote adoption of the code throughout their supply chains.
Those who sign the framework agree to pay 95% of their suppliers within 60 days, working towards adopting a 30-day window period as the norm.
How strict is the Prompt Payment Code?
In the last 12 months, a change in policy has meant those who failed to honour the code were named publicly, with a total 55 businesses suspended and a further 26 re-instated having demonstrated their improvement and dedication to the code.
Duty to report
Every year, thousands of businesses experience severe financial burden simply because they are not paid on time. Late payment is a major issue for smaller businesses and can adversely affect their ability to trade. Regulations made under section 3 of the Small Business, Enterprise and Employment Act 2015 require the UK’s largest LLPs and companies to report every six months on their payment policies, practices and performance. Although the Prompt Payment Code is a voluntary initiative, reporting businesses have to confirm if they are a signatory of the payment code. If they are, the name of the code should be provided.