Government crackdown on late payment begins

04/03/2015

Business minister Matthew Hancock has announced changes to the Prompt Payment Code (PPC) in an attempt to help end poor payment practices for small businesses.

In a speech to the EEF, the manufacturers’ organisation, Matthew Hancock announced that the government-backed PPC will now promote and encourage 30 day payment terms as standard, with all signatories committing to pay within a maximum of 60 days.

The PPC, first established in 2008, aims to encourage and promote best practice between organisations and their suppliers and currently has more than 1,700 signatories, who commit to paying their suppliers within clearly defined terms. The Code is also designed to ensure there is a proper process for dealing with any issues that may arise, but it has come under fire in recent months following a spate of controversies involving the payment practices of its signatories.

Under the new tougher rules, any signatory found to be in breach of the PPC will be removed unless they can prove exceptional circumstances. Although the code is voluntary, it is hoped that tougher action on those who don’t comply will encourage big firms to end poor payment practices and help small businesses to thrive.

The changes will be rigorously enforced by the new Code Compliance Board, which will include individuals from business representative bodies. The Board will investigate challenges made against signatories to the Code by their suppliers and remove those found to be in breach of the Code’s principles and standards.

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.”

In the coming weeks UK businesses will be encouraged to start complying with the strengthened PPC and end the late payment culture in the UK.

This action will complement the tougher reporting laws in the Small Business, Enterprise and Employment Bill which will force large companies in the UK to publish their payment terms, increasing transparency and empowering small businesses.

Using this data, the Code Compliance Board will be able to review the status of signatories to the Code and challenge those that pay their suppliers late or insist on excessively long standard payment terms.

What do you think? Will this action help tackle the late payment culture in Britain? Share your thoughts in the comments below.