Government to strengthen voluntary Prompt Payment Code, but stops short of outright enforcement

Ask most small businesses what the biggest bane of their lives was, and the likelihood is their answer would be late payments. Delayed payments for work completed or services provided can cause all sorts of problems for smaller businesses. Steven Glicher accountants work with many SMEs and have seen at first-hand how late payments can have a detrimental effect on the day-to-day running of a business.  Few businesses have the financial resources or resilience to cope when larger companies delay payment.  The good news is that the government has acknowledged that there is a problem, and we’re pleased to say that it looks like it might be about to do something to tackle the problem.

The government has announced that a small business commissioner will be appointed to provide help and advice to businesses.  Part of the small business commissioner’s remit will involve looking into the issue of payment disputes. The government has also confirmed it is working to strengthen the voluntary code for larger suppliers. However, the government has stopped short of committing to the enforcement of the 30-day payment rule under the Prompt Payment Code (PPC).

Under the Prompt Payment Code signatories agree to a maximum payment term of 60 days. Members also pledge to aim to pay within 30 days when possible. So far more than 1,800 members have signed up to PPC.

So what sort of action is the government and the Code Compliance Board likely to take? Well, that remains unclear at the moment. However, in a letter written jointly by small business minister, Margot James, and Phillip King, chief executive for the Chartered Institute of Credit Management (CICM) there was a declaration that payment within 30 should be ‘increasingly the norm’. There was also confirmation that if payment terms stretch beyond 60 days, companies will be expected to demonstrate that ‘exceptional circumstances’ exist. However, the letter also stated that the Code Compliance Board would not be enforcing compliance – only that payment within 60 days was a ‘requirement’.

What exactly are ‘exceptional circumstances’? Well, sadly there is no clear definition. Exceptional circumstances’ do not currently have dictated criteria, and in the letter both parties stated that dictating such criteria would not be ‘appropriate’.  Instead, the efforts of the board will be focused on setting examples of ‘good practise’ which can then be developed as individual cases are reviewed.

Speaking about the new initiative, Margot James said:

“Prompt payment can make all the difference to small businesses, boosting their cashflow and allowing them to invest in growth for the future. Although we have seen some progress, there are still too many business owners across the country who have not been paid on time by their customers.”

“We need a culture change to stamp this out and the Prompt Payment Code continues to play an important role in bringing this about, alongside a package of measures taken forward by government and industry.”

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