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Government tackles late payments to small firms to protect jobs

Tuesday January 19th, 2021

An overhaul of the Prompt Payment Code (PPC) to crack down on delayed invoices owed to small businesses has been announced by the government today (19 January).

Under new reforms, companies that have signed up to the Prompt Payment Code 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, £23.4 billion 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.

According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments, damaging Britain’s prosperity and threatening jobs.

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.

The reforms will help to build a culture of prompt payment between companies and challenge UK businesses to change their practices and stand by small partners at a critical time for the UK’s economic recovery.

The changes coming into effect immediately are:

  • requiring a company’s CEO or Finance Director, or the business owner where it is a small business, to personally sign the Code to ensure responsibility for payment practices is taken at the highest level of an organisation
  • introducing a new logo for signatories to use in external communications to show their commitment to the Code, making it more damaging to a company’s reputation to breach it
  • acknowledgement as a condition of signing the Code that suppliers can charge interest on late invoices
  • enabling administrators of the Code to investigate breaches based on third-party information

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.

The PPC currently has over 2,800 signatories, who are required to pay 95% of their invoices within 60 days or else be publicly struck off the Code until substantial changes to their payment practices have been made.

When a company is struck off the Code for poor practice, this is publicly announced by the Small Business Commissioner’s Office. A record of signatories and struck-off companies is maintained on the Prompt Payment Code and SBC websites.

The changes to the Code sit alongside a consultation on the powers of the Small Business Commissioner, which closed on 24 December 2020. The government will publish consultation responses and take forward proposed reforms in due course.

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

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