The Fair Payment Code explained for UK Construction subcontractors

The Fair Payment Code is a voluntary standard administered by the Office of the Small Business Commissioner (OSBC) that sets best practices for payment terms between businesses. Launched in late 2024 to replace the Prompt Payment Code, it awards businesses based on how quickly they pay their suppliers. 

The Fair Payment Code offers a vital safeguard for many SMEs, ensuring they get paid on time. In the already volatile construction industry, subcontractors depend on prompt payment after completing work. With construction consistently ranking among the trades most prone to insolvency1, timely payments are crucial to supporting businesses in this sector. 

In this blog, we explain: 

• What is the Fair Payment Code 
• Key changes for SMEs 
• Understanding the Award Tiers under the Fair Payment Code 
• Consequences if main contractors don’t pay on time 
• How Constructionline helps you find work from reliable buyers

What is the Fair Payment Code? 

The Fair Payment Code is an enhanced initiative designed to tackle late payments and improve cash flow for small businesses across the UK. Replacing the former Prompt Payment Code, the Fair Payment Code introduces a tiered award system (Gold, Silver, Bronze) to recognise businesses that pay suppliers on time. Administered by the Office of the Small Business Commissioner (OSBC), the code requires signatories to treat suppliers fairly, communicate payment terms clearly, and resolve disputes quickly. 

From Prompt Payment Code to Fair Payment Code: what’s changed? 

While the core mission remains the same – ensuring suppliers get paid on time – the transition to the Fair Payment Code brings crucial updates to strengthen protection for SMEs, particularly in sectors like construction where cash flow is critical.

Key changes at a glance 

• Tiered Awards: Instead of a single “signatory” status, companies now earn Gold, Silver, or Bronze awards based on strict payment performance criteria. 

• Stricter Criteria: To achieve Gold status, companies must pay 95% of all invoices within 30 days. 

• Recertification: Awards last for two years, after which businesses must reapply and prove they still meet the standards. 

• Support for Improvement: Companies not yet meeting the criteria can work with the OSBC on an action plan to improve their payment culture.

Why payment terms matter for SMEs and construction subcontractors 

In the current economic climate, cash flow is the lifeblood of any construction business. Late payments can stall projects, damage supply chains, and even force smaller subcontractors out of business. 

Historically, the construction sector has struggled with long payment terms. Research2 has previously shown that many businesses wait more than 40 days for payment, with nearly a third waiting over 60 days. 

The Fair Payment Code aims to change this by:

• Encouraging Faster Payment: Main contractors striving for Gold or Silver status must pay invoices faster (often within 30 days). 
• Increasing Transparency: Subcontractors can check a main contractor’s Fair Payment Code award level before tendering for work, helping you avoid poor payers. 
• Providing Recourse: The code gives suppliers a clear framework to challenge late payments and demand interest on overdue invoices. 

Understanding the Fair Payment Code Award Tiers 

Knowing what each tier represents helps you evaluate potential main contractors: 

• Gold Award: The business pays 95% of all invoices within 30 days. 
• Silver Award: The business pays 95% of all invoices within 60 days, and 95% of invoices from small businesses (fewer than 50 employees) within 30 days. 
• Bronze Award: The business pays 95% of all invoices within 60 days.
   

What happens if main contractors don’t pay on time? 

If you are working with a signatory of the Fair Payment Code and they pay late without justification: 

1. Right to Interest: You have the statutory right to charge interest on late payments. Fair Payment Code signatories are required to acknowledge and pay these charges. 
2. Report Issues: You can raise the issue with the signatory’s dedicated contact point. If unresolved, you can escalate it to the OSBC. 
3. Reputation Risk: Signatories that fail to meet the standards risk losing their award status, which can damage their reputation and eligibility for certain government contracts.