What suppliers need to know about changes to the Prompt Payment Code

In the current economic environment, cash flow is critical – so when suppliers are paid late, the results can be dire. It’s therefore vital that suppliers are aware of the schemes and legislation that can protect them from poor payment practices, like the recently refreshed Prompt Payment Code.

Since the collapse of Carillion in 2018, there has been a real focus on resolving the ongoing problem of late payment within the construction industry. Changes have been introduced in recent years – government contracts increasingly use project bank accounts, for example, which ensure that all contractors are paid on the same day. The Government has also introduced new legislation requiring Audit Committees to report their payment practices to small businesses within their annual reports.

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Yet a recent survey found that 37% of construction workers believe that payment practices have actually worsened in the past few years. Most businesses (72%) are waiting more than 40 days for their money, with almost a third (30%) stating that it takes more than 60 days for buyers to pay them.

For subcontractors, many of whom must pay their own suppliers under a range of different payment terms, the wait for payment is often too long. They want to work with buyers that are committed to paying their supply chain on time and in full. Buyers like those that have signed up to the Prompt Payment Code (PPC), an initiative set up by the Government to tackle late payment.

What is the Prompt Payment Code?

First introduced in 2008, the Prompt Payment Code is designed to encourage prompt payment between businesses, particularly from larger to smaller businesses. Almost 3,000 businesses have voluntarily signed the Code since then.

Signatories to the PPC agree to pay suppliers on time, give them clear guidance on payment procedures and encourage adoption of the code throughout their own supply chains. Those that fail to abide by the rules risk being suspended from the Code.

What’s changed?

On 1st July 2021, the rules of the PPC were tightened. Payment times to SMEs have been halved from 60 days to 30 days, and the signatory’s owner, CEO or Finance Director is now personally liable for poor payment practices.

Under the new reforms, organisations that have signed up to the Prompt Payment Code must also:

  • Pay 95% invoices from businesses with 50 – 250 employees within 60 days.
  • Pay 95% invoices from small businesses (with less than 50 employees) within 30 days.
  • Report annually on their payment performance, on a comply or explain basis (even if the signatory is an SME themselves).
  • Recognise the right of suppliers to charge late payment interest and charges if an invoice is paid late without justification.
  • Provide suppliers with a contact point for payment queries.
What does this mean for suppliers?

Smaller businesses are among those that have suffered most during the pandemic, and the changes to the PPC should help smaller suppliers in particular to get paid on time and improve their cash flow. If a supplier does experience payment issues with a buyer that has signed up to the Code, it should be easier to get them resolved quickly, as they should now have a dedicated point of contact for any payment queries.

The enhanced rules should also motivate buyers to put the necessary processes in place to avoid paying their suppliers late. In the event that an invoice is paid late with no justification for doing so, the Code states that signatories should accept and pay any late payment charges the supplier applies, so suppliers that do receive late payments should be recompensed. And as the Code must now be signed by the CEO, Finance Director or Owner, those that do not abide by the rules risk damaging not only their organisation’s reputation but also to their own professional reputation.

By requiring signatories to report on their payment performance annually, the Code will also make it easier for suppliers to see which buyers pay on time and in full, and avoid those who don’t.

Supporting suppliers of all shapes and sizes

At Constructionline, we understand the challenges suppliers are facing, so we’re determined to make it easier for you to find and win tenders with some of the UK’s leading buyers. We’ve created a range of Supplier memberships designed to help suppliers of all shapes and sizes to access new opportunities, from our subcontractor memberships to our new Material Suppliers memberships, which are designed to showcase material suppliers’ strengths.

If you’d like to find out more about how Constructionline can help you, get in touch with our teams via Live Chat or via our website and a member of the team will be happy to help you. 

Blog Payment, Late payment
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