The government is strengthening the Prompt Payment Code to ensure large companies pay small businesses on time.
Companies that have signed up to the code will be obliged to pay invoices within 30 days - half the time outlined under the current agreement.
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 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 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.
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.
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