Small businesses to be paid within 30 days

Reforms to the Prompt Payment Code from 1 July 2021 mean that companies that have signed up to the Code will have to pay small businesses within 30 days. The current Code says 60 days.

Halving the time small businesses have to wait to be paid will greatly assist with their cash flow and will help them to survive.

Around 3,000 companies are signed up to the Code, but there is poor compliance as many payments are delayed well beyond the 60-day target.

It is estimated that around £23.4 billion worth of late invoices are owed to British firms

Under the Code, finance Directors or CEOs will be required to take personal responsibility for compliance and accept that suppliers can charge interest on late invoices, and that breaches will be investigated.

Breaches of the Code will continue to be publicised by the government in order to encourage compliance.

Small Business Commissioner

The measures come on top of a consultation to bolster the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller suppliers on time.

The consultation, which closed on 24 December 2020, proposed new powers, including legally binding payment orders, launching investigations and levying fines.

According to the Federation of Small Businesses, around 50,000 businesses close every year due to late payments.

Code changes taking effect

Changes coming into effect immediately are:

• Requiring a company’s CEO or Finance Director, or the business owner where it is a small business, to personally sign the Code to ensure responsibility for payment practices is taken at the highest level of an organisation
• Introducing 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
• Acknowledgement as a condition of signing the Code that suppliers can charge interest on late invoices
• Enabling administrators of the Code to investigate breaches based on third-party information

In addition, the new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days will be effective from 1 July 2021.

The target for larger businesses will remain 95% of invoices within 60 days.

For more guidance on getting businesses working again after the Coronavirus, check out our Business After-COVID Knowledge Hub.