Fair Payment Code sees Government crackdown on late payments for SMEs

The Fair Payment Code is the new gold standard for payment practices in the UK, having officially replaced the Prompt Payment Code. Administered by the Office of the Small Business Commissioner (OSBC), the Fair Payment Code introduces a tiered award system to verify and showcase businesses that pay their suppliers fast and fairly. 

SMEs make up 99.9% of UK businesses¹, providing the backbone for the economy, therefore it’s crucial to support them and make sure their financial health is prioritised, especially for construction businesses where insolvency rates tell a dismal story year on year. But with the introduction of the Fair Payment Code (replacing the Prompt Payment Code), what can construction SMEs expect, now there are standards and legal thresholds in place to ensure they’re paid and protected?  

This blog covers: 

• The shift from the Prompt Payment Code to Fair Payment Code 
• Why the Government is cracking down on payment terms, plus current construction insolvency rates 
• Why the change was introduced under the Procurement Act 
• Benefits of complying with the Fair Payment Code 
• How Constructionline can help

 

The shift from the Prompt Payment Code to Fair Payment Code 

The UK Prompt Payment Code is no longer the benchmark. Launched in December 2024, the Fair Payment Code was introduced to drive a cultural shift in business payments. As of late 2025, over 400 businesses have already signed up, including major players in the construction and infrastructure sectors². 

Unlike its predecessor, the Fair Payment Code is not just a commitment; it is a verified standard. It distinguishes between businesses that say they pay well and those that prove it through rigorous evidence submission to the OSBC (Office of the Small Business Commissioner). 

 

Why the Government is cracking down on payment terms 

The transition to the Fair Payment Code and stricter enforcement under the Procurement Act stems from a critical need to stabilise the UK economy, particularly within the construction industry. 

The current Construction landscape: Insolvency statistics (2025-2026) 

The Insolvency Service industry data³ shows the construction sector remains disproportionately affected by poor cash flow. 

• High Volume: Construction firms accounted for 15.7% of all insolvencies in England and Wales in November 2025. 
• Rolling Totals: In the 12 months leading to November 2025, 3,950 construction firms became insolvent.
• Vulnerability: Profit warnings among FTSE construction and materials companies rose in 2025, driven by residential market weakness and delays.

Delayed payments exacerbate these insolvency risks. The government’s crackdown aims to ensure liquidity cascades down the supply chain to the SMEs that form the backbone of the industry and avoid dwindling figures.

 

Terms in the Procurement Act for Public Sector Contracts 

For main contractors working with the public sector, the Procurement Act has introduced mandatory statutory implied terms regarding payment. 

• 30-Day Terms: Contracting authorities must pay undisputed invoices within 30 days. 
• Supply Chain Flow-down: Crucially, this 30-day requirement implies that main contractors must also pay their subcontractors within 30 days for public sector work. 
• Transparency: Public bodies must publish Payment Compliance Notices every six months. 

Compliance with these terms is no longer optional; it is a prerequisite for winning and maintaining public sector contracts.

 

Benefits of the Fair Payment Code for Construction Contractors 

For subcontractors and construction SMEs, in short, getting paid on time is the biggest benefit under the Fair Payment Code. With reports of at least 38 companies going out of business every day⁴ due to overdue invoices, for many, the Fair Payment Code provides a lifeline for keeping afloat and holds other companies accountable for paying their suppliers on time. 

For main contractors, public sector buyers and contracting authorities, adopting the Fair Payment Code offers tangible commercial benefits beyond simple compliance: 

• Supply Chain Resilience: Paying subcontractors quickly reduces the risk of supply chain insolvency, ensuring project continuity. 
• Reputation and Tendering: Holding a Gold or Silver Fair Payment Code award acts as a verified badge of financial responsibility, enhancing bids for both public and private sector tenders. 
• ESG Compliance: Fair payment is increasingly viewed as a governance and social value metric. 
• Access to Labour: In a skills-short market, subcontractors prioritise main contractors with reliable payment histories. 
• Tiered System: Shows what level contractors meet, and the time ranges they aim to pay a percentage of their invoices to their supply chain

 

Main Contractors: Simplify supply chain compliance with Constructionline 

Work with subcontractors that outsource work? Want to know if they are treating and paying their suppliers fairly? 

Supplier and subcontractor compliance with the Fair Payment Code is easier when you have full visibility of your construction supply chain and easy access to every supplier’s details – including how many people they employ, which supply chain segment they belong to and which of your projects they are contracted to. 

The Constructionline platform offers: 

• A cost-effective and simple solution for centralising and managing essential supply chain information 
• Streamlines the sharing of clear, accessible guidance on payment procedures and invoicing requirements 
• Assists during onboarding and throughout ongoing operations 
• Keep your financial, operational and reputational risk to the absolute minimum 

 

Subcontractors: Work with reliable main contractors on Constructionline 

Want to work with reliable main contractors, who pay suppliers on time? 

Sign up to one of our subcontractor compliance memberships so you can: 

• Pre-qualify for more work faster 
• Apply for new construction opportunities and keep documentation in one place 
• Work with some of the UK’s largest tier 1 contractors 
• Find work across the UK and Republic of Ireland 

We work with some Main Contractors who’ve signed up to the Fair Payment Code: search by the directory here.

 

Key takeaways 

• The Fair Payment Code has replaced the Prompt Payment Code; it is now the primary verification of payment standards. 
• The Procurement Act mandates 30-day payment terms for public sector contracts, which flows down to subcontractors. 
• Insolvency rates in construction remain high (approx. 15.7% of all insolvencies), making fair payment essential for industry survival. 
• Achieving Gold or Silver status under the Fair Payment Code enhances reputation and reduces supply chain risk.

 

Frequently Asked Questions 

Q: Is the Prompt Payment Code still valid?
A: No, the Prompt Payment Code has been replaced by the Fair Payment Code. Businesses should now apply for Fair Payment Code status through the Office of the Small Business Commissioner. 

Q: What is the difference between the Fair Payment Code and the Procurement Act?
A: The Fair Payment Code is a voluntary tiered award scheme (Gold/Silver/Bronze) for all businesses. The Procurement Act is legislation that legally mandates 30-day payment terms for public sector contracts. 

Q: Who administers the Fair Payment Code?
A: The Code is administered by the Office of the Small Business Commissioner (OSBC), which verifies payment data before granting awards. 

Q: Can small subcontractors apply for the Fair Payment Code?
A: Yes, businesses of any size can apply. Holding an award demonstrates financial stability and reliability to potential clients and partners. See the current Fair Payment Code construction directory here.