Campaign for ‘compulsory’ prompt payment code gains support

A campaign for the government’s Prompt Payment Code to be compulsory rather than voluntary as it is now has been gaining cross party support from MPs.

The idea was put forward by the Association of Accounting Technicians (AAT), which believes that the current voluntary system isn’t delivering for small businesses. The association has made three recommendations.

• the Prompt Payment Code should be made compulsory for companies and organisations employing more than 250 people
• payment terms should be reduced from 60 days to a maximum of 30 days
• a penalty system for persistent late payers should be introduced and enforced by the Small Business Commissioner.

The proposals have been backed by several MPs from different parties. Conservative Sir Graham Brady, chairman of the Back Bench1922 Committee, said: “Prompt payment is essential for most businesses but particularly SMEs who often suffer real problems when not paid in a reasonable timeframe. The reforms suggested by AAT appear to be a good solution to this longstanding problem.”

Labour MP James Frith said: “The collapse of Carillion and subsequent damaging impact on SMEs demonstrated the urgent need to reform the Prompt Payment Code. The AAT has proposed three very sensible recommendations which I support, and which should be given serious consideration by the Government.” 

So far ministers have declined to make the code compulsory or fine late payers, although they have warned that persistent failure to settle invoices on time could lead to companies being barred from tendering for government contracts.

Such measures are a step in the right direction, but many small businesses still struggle with credit control. This can cause cash flow problems that prevent them functioning effectively and even put some out of business.

Firms need to ensure they monitor overdue invoices and take early action to ensure prompt payment. A letter from a solicitor is often enough to secure payment, as your customer then realises that you really mean business. If that doesn’t work, there are several more steps that can be taken up to and including court proceedings.

Failure to take early action could lead to cash flow problems and severe financial difficulties.

Please contact Neil O’Callaghan if you would like more information about the issues raised in this article or any aspect of credit control and debt collection.