Hancock announces new Prompt Payment Code standards

Friday 27 February 2015

The Prompt Payment Code, which is backed by the UK government, will now promote 30-day payment terms as standard, as was announced by business minister Matthew Hancock.

Mr Hancock said this in an address to EEF, the manufacturers' organisation, where he also said that there will be a 60-day maximum limit on payment terms. He also said that businesses will be removed from the Code for failure to meet these terms unless they can prove exceptional circumstances.

In the Code are a number of practices that businesses who sign up must follow when they are dealing with and paying suppliers, such as limited companies and sole traders. These have been set out with the views of businesses and suppliers in mind.

The recently launched Code Compliance Board will be in charge of enforcing the change. This board includes people from business representative bodies that will be looking into challenges made against people signed up to the Code by their suppliers. In instances where investigations find that companies are in breach of the Prompt Payment Code's principles and standards, those firms will be removed from the code.

So far, more than 1,700 businesses and public authorities have committed to the principles that are outlined in the Code, which include communicating effectively with suppliers and paying them within an agreed timeframe.

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.

"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."

This change has come in following a summit at Downing Street that was attended by the Federation of Small Businesses and the Confederation of British Industry. There has also been a meeting of the Prompt Payment Advisory Board, which was co-chaired by Mr Hancock and chief executive of the Chartered Institute of Credit Management Philip King that covered how the Prompt Payment Code could be altered so that it is stronger.

Over the next few weeks, businesses will be pushed to comply with the new standards set out in the updated Prompt Payment Code. These changes fit alongside the tougher reporting rules that have been introduced in the Small Business, Enterprise and Employment Bill. Under these new laws, the largest companies in the UK will have to publish their payment terms, which will make them become more transparent and give small businesses more power.

This data will be useful for the Code Compliance Board when it comes to reviewing companies that are signed up to the Code and for challenging companies that do not pay their suppliers on time or insist on excessively long standard terms.

By Victoria McDonnell

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