Changes to Prompt Payment Code to help Small Business with its Debt Collection.

by | Jan 22, 2021 | Blog

On 19 January 2021, BEIS announced changes to the Prompt Payment Code, the voluntary code under which over 2,800 companies and public bodies have committed to paying their suppliers on time and fairly. The code is administered and enforced by the Office of the Small Business Commissioner.

The following changes come into effect immediately:

  • A company’s CEO or finance director, or the business owner where it is a small business, must personally sign the code, to ensure responsibility for payment practices is taken at the highest level of an organisation.
  • There is 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.
  • Signatories must acknowledge, as a condition of signing the code, that suppliers can charge interest on late invoices.
  • Administrators of the code can now investigate breaches based on third-party information.

In addition, from 1 July 2021 signatories will be required to pay 95% of invoices from small businesses (those with fewer than 50 employees) within 30 days. The target for larger businesses will remain 95% of invoices within 60 days.

This is great news for small businesses with customers who are signed up to the code. If your customer isn’t signed up to the code, then you will have to resort to the usual methods of debt collection. As a solicitor in leicester who specialises in debt recovery, get in touch if you need help with unpaid invoices.

A consultation on the powers of the Small Business Commissioner closed on 24 December. One issue on which views were sought was whether the Commissioner should be able to investigate suspected poor or unfair payment practices on their own initiative or at the request of a third party (as well as following a complaint by an affected small business).This announcement states that the Government will publish consultation responses and take forward proposed reforms in due course.

What is the Prompt Payment Code?

In 2008, the Institute of Credit Management (CICM) set up the Prompt Payment Code (Code) on behalf of the government, in response to calls from businesses to drive a change in payment culture. Responsibility for administering and enforcing the Prompt Payment Code was transferred to the Office of the Small Business Commissioner (SBC Office) in March 2020, in line with the government’s stated ambition to bring all late payment initiatives under a single umbrella, and the Code is currently hosted on the SBC website.

The Code, which is voluntary, gives companies and public bodies the opportunity to commit to paying their suppliers on time and fairly. There are around 2500 businesses signed up to the code.

The Code requires signatories to commit to the Code criteria, and provide five references on joining the Code, which are validated on a six-monthly basis, and checked on a random basis. Referees must meet certain criteria, including that they supply goods or services that are core to the potential signatory’s business activity, and trade regularly with them.

Code signatories undertake to:

  • Pay suppliers on time within the terms agreed at the outset of the contract, without attempting to change payment terms retrospectively, and without changing practice on length of payment for smaller companies on unreasonable grounds.
  • Give clear guidance to suppliers:
    • providing suppliers with clear and easily accessible guidance on payment procedures; 
    • ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers; and
    • advising them promptly if there is any reason why an invoice will not be paid to the agreed terms.
  • Encourage good practice by requesting that lead suppliers encourage adoption of the code throughout their own supply chains.

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