Is the Prompt Payment Code encouraging better practice in the construction sector?

The Prompt Payment Code – which is administered by the Chartered Institute of Credit Management (CICM) on behalf of the Department for Business, Energy and Industrial Strategy (BEIS) – has been in the news recently following the suspension of several high-profile companies for failing to honour their commitment to pay 95% of all supplier invoices within 60 days.

The Prompt Payment Code requires signatories to uphold its best practice for payment standards to end the culture of late payment. In April this year, based on the new Payment Practices Reporting data that large businesses are required to publicly report, CICM made the move to suspend 17 businesses, with a further four suspended in July 2019. This week, Costain has become the first major contractor to be reinstated after demonstrating ‘real and fast progress’ to ensure its suppliers are paid in line with the requirements of the code.

However, it has not been without its critics. Some commentators have highlighted inconsistencies in the data used to suspend businesses, with analysis showing some major contractors with poorer payment records are still listed as signatories. Some have also speculated why it has taken until now to take action, when the Prompt Payment Code was introduced 11 years ago.

That said, it has still acted as a clear signal that late payment practices will not be tolerated, and comes following the announcement in June of further measures to introduce more stringent penalties to businesses that don’t pay promptly. However, with the changes in Government casting a degree of uncertainty over the construction sector, it will be hoped that these plans are still implemented under the new administration.

Who is a signatory to the Prompt Payment Code?

The CICM keeps an up-to-date list of current signatories on its website, as well as a list of businesses that have been suspended for poor payment practices. While some inconsistencies have been highlighted, it still provides a useful guide to companies that follow best practice when it comes to prompt payment.

The impact on SMEs

As we have discussed here before, the impact of late payments on construction SMEs can be devastating. Our research showed that a third of SMEs cited difficult payment terms as a business challenge, and the Federation of Master Builders (FMB) found that over three quarters of their members’ payments were late. While the recent suspensions by the CICM highlight the issue is being taken seriously – and businesses are being held to account – more still needs to be done to ensure SMEs are protected, with many commentators stating that the only way to ensure real change will be to enforce strict financial penalties on poor payers.

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Why not get in touch with our experts today and find the membership level that’s right for your business?

Blog Payment, SMEs, Late payment
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