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August 29, 2019

UK gov’t tightens late payment rules from September

Government late payment rules that will affect private businesses applying for public contracts are set to come into force from the 1 September onwards.

By Christopher Marchant

Government late payment rules that will affect private businesses applying for public contracts are set to come into force from the 1 September onwards.

Initially announced in November 2018, the Prompt Payment Code will require 95% of all supply chain invoices to be paid within 60 days for organisations that want to do business with government departments.

Suppliers that do not comply with this standard could be prevented from winning government contracts. This applies to any organisation that bids for a central government contract in excess of £5m a year, which will need to demonstrate it has effective payment systems in place to ensure a reliable supply chain.

Organisations bidding for those contracts in excess of £5m a year may be required to show how suppliers will be paid on time, with details about payment performance, including the percentage of invoices paid within 60 days.

If businesses do not meet the required standard they will be asked to prove how the organisation will improve before any contracts are awarded.

The Prompt Payment Code is administered by the Chartered Institute of Credit Management (CICM) on behalf of the department of Business, Energy & Industrial Strategy.

Large businesses are already required to publish their payment performance under the Reporting on Payment Practices and Performance Regulations 2017.

Tim Boag, group managing director for business finance at Aldermore, said: “This is a huge step in the right direction of finally tackling the issue of late payments, which impacts one in six small businesses across the UK.

“This Government initiative will increase accountability and support the small business community in an uncertain economic climate. On average, a business suffering from late payments will be [according to Aldermore research] owed £34,000. This unpaid debt can be the difference between being able to pay an employee’s salary or pursue a new business opportunity. We hope we see further action taken to ensure prompt payment for all suppliers.”

Announced in June 2019, the government has also proposed new powers for the Small Business Commissioner to tackle late payments through fines and binding payment plans, company boards to be held accountable for supply chain payment practices for the first time, and a fund to encourage businesses to use technology to simplify invoicing, payment and credit management. However, it is not mandatory for businesses to sign up to the Prompt Payment Code.

The measures were criticised for a perceived lack of impact on the issue by organisations including the National Federation of Builders and the Association of Accounting Technicians (AAT).

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