Government to tighten up the Prompt Payment Code

The government is tightening up the Prompt Pay Code (PPC) to encourage firms to pay invoices quicker and so improve cash flow for smaller firms.

Business Minister Matthew Hancock says the PPC will now promote 30-day terms as standard and introduce a 60-day maximum limit. Unless firms can show there are exceptional circumstances that justify longer terms, they will be removed from the list of businesses that have signed up to the code.

The changes are part of an ongoing programme designed to promote faster payments. The Small Business, Enterprise and Employment Bill will introduce tougher reporting laws, forcing larger companies to publish their payment terms as a way of increasing transparency and putting pressure on them to adopt better practices that are more helpful to smaller businesses.

The PPC sets out the kind of fair and reasonable practices that businesses should follow when dealing with suppliers, such as paying invoices on time and communicating effectively if problems arise. The code is voluntary, but by signing up to it, firms gain the benefit of reassuring their suppliers that they will be treated fairly and paid on time.

Miles Gabriel, spokesman for the Prompt Payment Advisory board, said: “The Code aims to move the UK to a 30-day payment environment. Whilst it remains voluntary, it gives businesses the opportunity to advertise concern for their suppliers’ welfare and distinguish themselves from their competitors. This creates a commercial advantage for businesses that improve their payment terms, over those that are benefiting from imposing unreasonably long terms at the expense of their suppliers.”

More than 1,700 businesses and public authorities have so far signed up to the code.

Mr Hancock said: “Making small businesses wait an unreasonable time for payment is entirely unacceptable. I know first-hand the great burden that late payment can place on firms – and how it can strain family finances – which is why I am committed to stopping it.

“Big companies should lead by example and pay small suppliers within 30 days. I have already written to the FTSE 350 urging them to sign up to the Prompt Payment Code.”

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