Reforms to the Prompt Payment Code will help small businesses
The Government has strengthened the Prompt Payment Code and told big businesses they must pay small suppliers within 30, rather than 60 days.
The Department for Business said that despite 3,000 companies signing up to the code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. At present, £23.4 billion worth of late invoices are owed to British businesses. The impact of these late payments can be severely damaging to businesses’ cash flow and ultimate survival.
From 1 July 2021, the 3,000 companies currently signed up to the code will have to pay 95% of invoices to suppliers with 50 employees or fewer within 30 days. The target for larger businesses will remain 95% of invoices within 60 days.
Changes that have already come into effect include:
- CEOs or Finance Directors are required to take personal responsibility for payment practices by signing the Code
- a new logo for signatories to use in external communications to show their commitment to the Code
- acknowledging that suppliers can charge interest on late invoices under the Code, and
- breaches of the Code will be investigated.
The changes will provide much-needed relief to small businesses at a critical time for the UK’s economic recovery from the Covid-19 pandemic. The government-led vaccination programme is in hand and we are seeing strong indications regarding the kickstarting of the economy, timely flow of cash around the economic cycle is essential. More than ever before will company's need to be able to rely on prompt payment of outstanding balances.
This week it was reported that almost 40,000 UK construction firms face insolvency by the end of April and their collapse would mean unpaid invoices amounting to £2.2bn are at risk of vanishing from construction supply chains.* If this is a symptomatic of the economy as a whole, then there is much to be concerned about and the value of prompt payments becomes even greater.
Businesses struggling with cashflow and concerned about their financial position should seek professional advice as early as possible.
To discuss any corporate recovery or insolvency issues you may have, please contact Jeremy Oddie or Julie Webster below.
* Red Flag Alert data
Written 17 February 2021.