A voluntary Code of Practice for businesses to sign up to, the Prompt Payment Code (PPC) drawn up by the Department of Business and Trade, is fast becoming recognised as standard good practice within all industries to support the reduction of late payments and prevent smaller businesses falling into cash flow problems.
The Code was established in 2008 to help set the standards for better payment practices between companies and their suppliers, and businesses can request to join the Code through the Small Business Commissioner’s Office.
The PPC has since been updated in 2021, and as it continues to grow and become more widely cited, we look at the benefits to businesses who sign up to the Code as well as how it helps to support and reduce non-payment of invoices going forward.
What is Prompt Payment Code?
The Prompt Payment Code is designed to support good practice after it was recognised in industry (primarily the construction sector) that late invoice payments were crippling suppliers, and works and projects were coming to a halt immediately, with businesses collapsing due to poor cash flow.
As a government initiative, the UK Prompt Payment Code has quickly become a lifeline for many suppliers. However, it has also been a reputational boost for those who have chosen to sign up to the Code.
Ensuring a fairer way to manage operations, the PPC supports businesses to build an effective payment system with their suppliers.
Prompt Payment Code Explained
By signing up to the Code, businesses ultimately sign up to say they will endeavour to pay their suppliers on time, every time.
They will provide clear terms and conditions, guidance for dispute resolution, and they will have systems and processes in place to notify suppliers of late payment.
In addition to its first release in 2008, the PPC was again updated in 2021 with the confirmation that there is now a requirement for companies to pay 95% of their invoices within 60 days, with a further stipulation that 95% of invoices from small to medium-sized businesses/suppliers must be paid within 30 days.
Businesses who sign up to the Code must report on their payment performance annually to ensure they are achieving this target, and they have to report and acknowledge the right to charge late payment fees and interest charges.
New changes in 2021 also see the Code state that the Chief Executive must be on board with the Code and must be the official signatory to sign up to the Code, engaging with PPC administrators at all times.
Businesses must also provide a clear point of contact for any payment queries, matched with clear guidance about payment practices.
Businesses must also advocate and promote the Code publicly by displaying PPC logos and encouraging others to sign up and adopt the Code.
It’s important to note that for all this is a voluntary sign-up; you can be suspended from the PPC if you’re found in breach of any of the Code’s guidance. For example, if your reporting shows that less than 90% of invoices are paid within 60 days, this will show non-compliance, and the signatory (Chief Executive) will be personally removed from the Code.
Benefits of Prompt Payment Code for Late Invoices
Poor payment practices nationally and internationally significantly impact supply chains and business relationships. Preventing orders from being completed, work to be finished, and businesses from staying in business.
Helping to tackle the issue of late payments and the culture of “we’ll pay you when we get paid” is the Prompt Payment Code.
- Helping to build solid and more secure relationships and contacts.
- Supporting business reputation and brand.
- Reducing the risk of supply chain and project delays.
- More available opportunities as better working relationships are created. (Being part of the Code can also be a prerequisite when bidding for government contracts).
- Discounts could be introduced for early payment, again strengthening business relationships.
- With robust credit control systems in place, it also means less resource and cost to businesses chasing and contacting suppliers about late payment.
Direct Route
At Direct Route, we understand how important it is for businesses to commit to better payment practices and paying suppliers within a reasonable timeframe.
Our team works alongside businesses across all industries, supporting credit control processes and procedures that encourage prompt payment.
Collecting overdue invoices and supporting your credit teams to chase invoices and follow up on late payments, we aim to help businesses maintain a healthy cash flow at all times.
To see how we can support you call us on +447860 197476 or email your questions to memberbenefits@directroute.co.uk; we’d be happy to help.
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