There is a clear focus from the government to improve businesses’ payment performance and, as a result, reduce late payment in the UK.
As such, the Office of Small Business Commissioner was set up as an independent public body to specifically look at ways to tackle late payment and poor payment practices.
One such way is the rollout and launch of the new code, the Fairer Code UK.
We look at this code in more detail throughout this post, however, if you are looking for additional support with business debt collection, please get in touch with our team today to see how we can help.
Fair payment code
The Fair Payment Code was officially launched on 3 December 2024 and encourages businesses to pay on time.
Replacing the previous Prompt Payment Code, businesses can apply for a charter and gain accreditation, with the accreditation lasting 2 years.
The code is voluntary, and businesses, when they sign up to the code, must sign up to the set expectations and payment practice standards, which include:
- Contracts should be clear, transparent, and include all relevant information.
- Everyone should be clear and agree on payment terms. Businesses should know when they can expect payment.
- Contractual disputes over the delivery of goods or services received should be avoided, and if they do occur, they should be resolved quickly.
Ultimately, businesses must be clear, fair, and collaborative with all suppliers. This means that all reporting duties must be transparent, and businesses must report on their total sum of payments and the percentage not paid within the agreed terms.
Businesses opt to sign up to the code to improve their reputation, be able to tender for public sector contracts, play their part in improving payment practices, and become more efficient in their own practices.
Fair payment code requirements
There are three tiers to the fair payment charter, and depending on how quickly you pay your supplier invoices will depend on what tier you will qualify for, i.e. bronze, silver, or gold.
Gold – if a business pays 95% of its invoices within 30 days, it qualifies for gold status.
Silver – if a business pays 95% of their invoices within 60 days (and 30 days to businesses with under 50 employees), they will qualify for silver status.
Bronze – if a business pays 95% of their invoices at 60 days, they will qualify for bronze status.
Businesses are able to sign up to the code through the Small Business Commissioner’s website, and businesses will need:
- Proof of a UK address
- Availability and evidence of standard contract terms
- Two supplier references
- Evidence of past payment performance.
In order to move up to the next tier within the code, businesses must be able to clearly demonstrate and prove, with evidence, how they have and continue to tighten up their payment practices.
The Office for Small Business is responsible for checking a business’s compliance, UK payment compliance, and payment practice evidence; keeping businesses in check; and gaining deeper insight into the economy and business-to-business transactions.
They also have a robust complaints policy and procedure, which is the main form of redress for many businesses.
Benefits of paying on time
Small to medium-sized businesses can be owed on average up to £22,000 per year, making cash flow a major issue.
This is where the benefits of the code can help, as the benefits of paying on time mean:
- You don’t have to find another supplier if the one you are using goes into administration/closes down due to late payments piling up.
- Paying late can often raise suspicions that you are in financial difficulties.
- Paying on time or early helps to build stronger relationships with suppliers.
- Prompt payment helps to build supply chain resilience.
- Helps with the tendering of public sector contracts.
- Promotes good practice.
- Encourages more people to work with you.
Commercial debt collection
It has never been, and nor is it still acceptable for businesses to delay payments and keep suppliers waiting 90 to 120 days for payment of invoices for goods and services that have been delivered and received.
Not only does it break the contract in place, but it also breaks the relationship between both parties.
Late payment is time-consuming to chase, and businesses no longer have the cash flow to meet ongoing everyday operational costs, which can impact borrowing and restrict investment in future growth.
Small businesses rely on and need healthy cash flow in order to keep operating and indeed grow.
This is where we can help.
As debt collection specialists, we offer a range of commercial debt collection services tailored to your specific requirements.
We understand the impact late payments can have on cash flow, which is why we work with you to successfully collect within an acceptable timeframe while also maintaining business-to-business relationships.
Taking the pressure off your time and resources, let us help you collect outstanding payments today.
Email your requirements to memberbenefits@directroute.co.uk.
The upcoming article will be interesting: Mandatory Statutory Interest on Late Invoices: How to Calculate in 2025