13 Sep 2019 / Back to latest updates

Prompt Payment Code – how effective and how to learn from it

Late payment facts

• £2.5bn lost to economy annually

• Average small business owed £24,841

• Causes 50,000 businesses to fold each year

• End to late payments could create 3.4m jobs

The Prompt Payment Code (“PPC”) is a voluntary scheme to standardise payment terms between businesses. Under the scheme Businesses send their payment records twice a year to the Government who are put details on their website.

Signatories include local Councils, Bupa, Banks and British Airways Plc.  

Signatories aim to: –

1. Pay suppliers within the agreed terms;
2. Give clear guidance to suppliers;
3. Encourage good practice; and,
4. To pay suppliers within a maximum of 60 days (in line with late payment legislation requirements), to work towards adopting 30 days as the norm.

Late payments are worth almost £25,000 a year and an average of 50,000 small businesses fold every year because of cash flow problems.

The New System

• New smaller businesses will be warned which businesses have a poor record of paying suppliers on time.
• Companies which fail to report their payment records will also be highlighted.
• The importance of a good payment record may affect a supplier’s reputation if records are available to the public. In July 2019 you may have seen that eighteen companies – including BT Plc, British American Tobacco, and Centrica – have been suspended from the Prompt Payment Code for failing to pay suppliers on time.
• There are concerns of the effectiveness of the PPC as it does not have investigatory powers nor award fines.
• In August 2019 the Government stated it will only award public contracts to companies that can show prompt payment to their own suppliers.

Practical Steps your business can take: 

1. Check your customer or supplier’s latest accounts before signing a contract – either on Companies House website (free to use) or using Experian;
2. Check payment terms of the contract – make the terms longer or shorter depending on the customer/ supplier [check the PPC’s website to see if a supplier is a signatory;
3. Include in your terms and conditions that further interest will become due on any unpaid invoice;
4. Keep a copy of all correspondence (emails, letters and notes of calls) with your supplier/ customer this may proof useful at a later date if any dispute is raised. 
5. Get specialised advice – please contact our friendly team for further assistance.

The Debt Collection Centre is a specialist debt recovery service offered by city law firm Devonshires offering a one-stop-shop for businesses suffering from late payments. The team sends an initial letter before action on a no-collection, no-fee basis and progresses the matter in-house through the Courts using the firm’s specialist solicitors. For speedy assistance in recovering money owed, please contact our specialist team.