What is the Prompt Payment Code and why has it been replaced by the Fair Payment Code?

The Prompt Payment Code was a voluntary UK government initiative designed to tackle late payment practices. In late 2024, it was replaced by the Fair Payment Code, an enhanced voluntary standard now administered by the Office of the Small Business Commissioner (OSBC). The Fair Payment Code introduces stricter standards, a tiered award system, and a stronger focus on supporting small businesses – particularly in industries where healthy cash flow is critical, such as construction. 

In this blog, we’ll explain: 

• What is the Prompt Payment Code 
• What is the Fair Payment Code 
• Why has the Prompt Payment Code been replaced by the Fair Payment Code 
• Benefits for SMEs 
• How the Prompt Payment Code (now Fair Payment Code) links to the Procurement Act 
• How Constructionline can help manage supply chain expectations

 

What is the Prompt Payment Code? 

The Prompt Payment Code was a voluntary code of practice for businesses, administered by the OSBC. It set standards for payment practices between organisations and their suppliers, with signatories committing to paying 95% of invoices within 60 days and progressing towards 30-day terms. The aim was to ensure suppliers received timely payments and clear guidance on payment procedures.

 

What is the Fair Payment Code? 

The Fair Payment Code is the new, improved voluntary standard that replaced the Prompt Payment Code at the end of 2024. Developed and managed by the OSBC, the Fair Payment Code builds on its predecessor’s mission to tackle late payments but adds several important enhancements:

• Tiered Award System: The Fair Payment Code recognises businesses with Gold, Silver, or Bronze awards, depending on how quickly they pay supplier invoices. This award system means businesses can demonstrate different levels of payment performance, rather than simply meeting or missing a single standard. Awards are valid for two years, after which businesses must reapply and provide evidence of ongoing compliance. 
• Focus on Continual Improvement: Companies not ready for an award can access support from the OSBC to improve their practices and work towards a higher tier. 
• Supporting Fair Payment Culture: The Fair Payment Code is part of a wider effort to drive continual improvement in payment behaviours and to foster a more resilient business environment.

 

Fair Payment Code compliance and behaviours 

Applicants for the Fair Payment Code must commit to a set of clear, fair, and collaborative behaviours. These include: 

• Ensuring contracts are clear and easily understood. 
• Setting out transparent payment terms so everyone knows when to expect payment. 
• Actively avoiding payment disputes, and resolving any disputes quickly when they arise. 

It’s also considered unfair to: 

• Keep suppliers waiting 90 or 120 days for payment, particularly when they are smaller businesses that cannot absorb the impact of slow cash flow. 
• Break contractual promises or use suppliers’ payments to fund your own business. 
• Mislead suppliers about expected payment times or intentionally delay issuing purchase order numbers or disputing invoices as a means of stalling payment. 

Healthy cash flow is vital for small business survival and prosperity. Late or extended payment times can disrupt operations and, in severe cases, put companies out of business altogether. The Fair Payment Code aims to address these issues head-on, creating a more ethical and effective payment landscape for everyone. 

 

Why has the Prompt Payment Code been replaced? 

The move to the Fair Payment Code addresses several shortcomings of the original scheme and aligns with government priorities to better support small businesses and the broader economy: 

• Stricter Standards: The new code introduces more ambitious targets, including a Gold level for paying 95% of all suppliers within 30 days, pushing larger firms to support smaller suppliers more proactively. 
• Tiered Recognition: Gold, Silver, and Bronze tiers provide visible recognition of good payers and create a pathway for continued improvement. 
• Increased Accountability: Each award lasts only two years. Regular reapplication and evidence submission are required, so companies must sustain their good payment practices. 
• Enhanced Supply Chain Resilience: By encouraging prompt payment, the Fair Payment Code helps strengthen entire supply chains and builds trust throughout the business ecosystem. 
• Positive Business Reputation: Companies that achieve Fair Payment Code awards can display the logo, signalling their ‘good payer’ status to suppliers, investors, and prospective employees.

 

Benefits of the Fair Payment Code in Construction 

Construction has historically struggled with long payment terms. Adopting the Fair Payment Code offers significant advantages for SMEs: 

• Improved Cash Flow: Faster payments reduce insolvency risk for subcontractors and keep liquidity moving through the supply chain. 
• Competitive Advantage: Gold or Silver award holders enjoy a stronger reputation and appeal to both clients and premier supply chain partners. 
• Government Contract Eligibility: Conforming to the Fair Payment Code remains important for access to major public sector contracts. 
• Stronger Supply Chain Relationships: Fair and timely payments foster collaboration, trust, and better project delivery – and are a key expectation under the Fair Payment Code.

 

How the Fair Payment Code links to the Procurement Act 

The Procurement Act (2023), effective since February 2025, now legally requires all public sector contracts to include 30-day payment terms. This statutory requirement is passed down the supply chain, obliging main contractors to pay their subcontractors within the same timeframe. The Fair Payment Code provides a transparent way for businesses to show they are in compliance – or exceeding – the new legal requirements. 

Contracting authorities must publish “Payments Compliance Notices” every six months, and government spot checks will help ensure proper standards are being met on major projects.

 

 

How Constructionline can help you 

Constructionline supports main contractors and public sector buyers, and subcontractors in adapting to these changes: 

For Main Contractors and Public Sector Buyers 

With Constructionline, you can easily manage and monitor your supply chain’s compliance and payment performance, with Risk Radar. 

Use Risk Radar’s enhanced regulatory datasets to uncover what’s really going on in your supply chain, so you can mitigate risk, protect your projects – and reputation.

Regulatory data included on Risk Radar 

• Adverse Media 
• PEPs and Sanctions 
• Tax Avoidance Schemes & Litigation Decisions 
• Deliberate Tax Defaulters 
• National Minimum Wage Naming Scheme 
• Competition & Markets Authority (CMA) Cases 
• Construction court cases 

And so much more!

New customer: See our construction risk management solution in action!  

Existing customer: Login to Risk Radar and see who’s in line with the latest regulatory demands – or speak to your Account Manager!

For Subcontractors 

We help subcontractors demonstrate financial reliability and stability. Maintaining an up-to-date Constructionline profile allows you to showcase your status as a reliable, skilled subcontractor with up to date documentation. 

New customer: Check out our compliance memberships 

Existing customer: Login and work with buyers looking for reliable subcontractors like you! 

 

Key takeaways 

The Prompt Payment Code has been replaced by the Fair Payment Code to promote a healthier payment culture, including: 

• Award System: The Fair Payment Code uses Gold, Silver, and Bronze awards to acknowledge best practices and progress. 
• Stricter Rules and Oversight: Awards last just two years and require regular evidence of compliance; companies that fall short risk losing their award status. 
• Legal Alignment: The code complements new laws requiring 30-day payment terms in public sector supply chains. 
• Broader Benefits: Improved cash flow, a more resilient supply chain, and a stronger business reputation are all potential rewards. 
• Support Available: OSBC guidance is available to help businesses meet the new benchmarks.

 

Frequently Asked Questions (FAQs) 

Q: Do existing Prompt Payment Code signatories automatically transfer to the new code?
A: No. Previous signatories must apply separately for the Fair Payment Code and provide new evidence to achieve a Gold, Silver, or Bronze award. 

Q: Is the Fair Payment Code mandatory for construction companies?
A: The code is voluntary, but Fair Payment Code awards are often required to bid for government contracts over £5 million, and are increasingly sought in the private sector. 

Q: What happens if a company fails to meet the Fair Payment Code standards?
A: The OSBC may downgrade businesses to a lower tier or remove them from the code if investigations find standards are not being met.