In a speech to the EEF, the manufacturers’ organisation, Matthew Hancock will announce that the government-backed Prompt Payment Code will now promote 30-day terms as standard, with a 60-day maximum limit. Unless signatories can prove exceptional circumstances for longer terms, they will be removed from the Code.
The change will be rigorously enforced by the new Code Compliance Board, which will include people from business representative bodies who will investigate challenges made against signatories to the Code by their suppliers. The Compliance Board will remove signatories found to be in breach of the Code’s principles and standards.
The Prompt Payment Code sets out fair and agreed practices for businesses to follow when dealing with, and paying, their suppliers. More than 1,700 businesses and public authorities have so far committed to these principles, which include paying suppliers within an agreed timeframe and communicating with them effectively.
Business Minister Matthew 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.
Fairer payment practices will help small businesses grow and create jobs. This is a key part of our long-term economic plan to build a better Britain.
The change follows a Downing Street summit, attended by the Federation of Small Businesses (FSB) and the Confederation of British Industry (CBI) and a meeting of the Prompt Payment Advisory Board, which was co-chaired by Matthew Hancock and Philip King, Chief Executive of the Chartered Institute of Credit Management (CICM).
Businesses will be actively encouraged to start complying with the strengthened Prompt Payment Code in the coming weeks. The changes complement the tougher reporting laws in the Small Business, Enterprise and Employment Bill. These new laws will force the UK’s largest companies to publish their payment terms, increasing transparency and empowering small businesses. The Code Compliance Board will be able to use this data to review the status of signatories to the Code and challenge those that either do not pay their suppliers promptly or insist on excessively long standard terms.
The Prompt Payment Code is administered on behalf of the Department for Business, Innovation and Skills (BIS) by the CICM.
Philip King, Chief Executive of the CICM, said:
The Prompt Payment Code has had a significant impact in challenging payment practices and creating a debate and dialogue around the behaviour and culture of late payment that did not previously exist – a fact borne out in the recent joint CICM/BIS survey.
I am delighted that we have now agreed to further strengthen the Code, giving it more structure and introducing a Compliance Board to build on the success of challenges to date.
The 60-day maximum is also to be welcomed, and the decision of the Advisory Board is an indication of how far the debate and sentiment has moved since the Code was launched, leading to a recognition that ethical treatment of the supply chain should be an imperative.
Miles Gabriel, spokesperson for the Prompt Payment Advisory board said:
We were exceptionally pleased that large businesses, public authorities and small businesses were given the opportunity to come together and agree measures to strengthen the Prompt Payment Code. We know how important small businesses are to the UK economy and how critical prompt payment is to their cash flow. Action to strengthen the Prompt Payment Code will come as welcome news to the entire UK business supply chain.
Critically, 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.
A joint CICM/BIS survey launched in December 2014 found that 72% of signatory responses supported the introduction of a maximum payment target and 63% of these thought that the term should be 60 days.
Introducing a maximum payment term to the Prompt Payment Code has been raised during Parliamentary debates of the Small Business, Enterprise and Employment Bill. Today’s announcement delivers on the government’s commitment to Parliament to strengthen the Prompt Payment Code.
Notes to editors
1.The Prompt Payment Code is a voluntary Code to drive a change in payment culture. It is administered by the CICM on behalf of BIS. More information about the Code can be found at Prompt Payment Code website.
2.In its response to its consultation ‘Building a Late Payment Culture’, the government committed itself to strengthening the Code. It set up a new Advisory Board to consider:
- website content and information
- promoting awareness of the Code
- monitoring of signatory behaviour
It was also asked to consider whether the Code’s principles remain fit for purpose, or whether they need to be changed.
3.At its meeting on 10 February, the Advisory Board agreed to:
- enshrine a 30-day payment target as a norm, with a maximum 60-day target for most payments (95% of payments) or if there are exceptional circumstances
- require all Code signatories to report on their payment practices, in line with the new mandatory reporting requirement being introduced by the government. Whilst this is mandatory for large businesses, smaller businesses will be required to report on a comply-or-explain basis
- establish a new Compliance Board, with the ability to investigate, help, sanction and if need be expel signatories from the Code
- improve the Code website to promote best practice
4.These decisions were based on a result of Code signatories and members of the public. The survey found:
- 72% of signatories who responded supported the introduction of a maximum payment term, and 63% thought this should be 60 days
- 70% of all participants felt that members should provide report on their payment practices
- 57% of all respondents believed that strengthening the enforcement proposals were workable
5.This measure also responded in part to concerns raised in Parliament during passage of the Small Business, Enterprise & Employment Bill, where some MPs and Peers argued for a mandatory 60-day payment term in the Code.
6.Code signatories will be actively encouraged to comply early with these changes, ahead of them coming into force formally next year.
7.New legislation that came into force on 25 February 2015 means that every business in the public sector supply chain must comply with 30-day payment terms, including suppliers and sub-contractors. More information can be found in ‘Government spends £11.4 billion with SMEs’.