Reforms to the Prompt Payment Code to prevent delayed invoices owed to small businesses have been announced by the government
Under new Prompt Payment Code reforms, companies that have signed up to the code will be obliged to pay small businesses within 30 days – half the time outlined in the currently.
Currently, £23.4bn 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 under the code and that breaches will be investigated.
Those signed up to the Prompt Payment Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the government in order 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.
‘Relieving some of the pressure on small business owners’
Small business minister, Paul Scully, said: “Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK.
“Today, we are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime – pushing big businesses to pay their suppliers on time.
“By signing up to the Prompt Payment Code and sticking to its rules, large firms can help Britain to build back better, protecting the jobs, innovation and growth which small businesses drive right across the UK.”
The reforms will help to build a culture of prompt payment between companies and challenge UK businesses to change their practices and stand by small partners at a critical time for the UK’s economic recovery.
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.