Prompt payment

[edit] Introduction

Prompt payment is the settling (paying) of invoices and bills within an acceptable time period that is usually set by a contract or party that requires payment (the supplier). Paying on time is regarded as good business practice.

The demand for payment is usually made by sending the client an invoice which usually states the payment period and may include other payment details. A subcontractor having supplied services to a contractor may require payment within 30, 60 or 90 days, depending on the firm involved, or on the contract to which they agreed.

Many firms pay within the agreed time period, however, some have a culture of late payment which can cause the supplier cash-flow problems, especially if it is a small firm. Some operators, having agreed to specific payment terms, may seek to change the terms retrospectively.

[edit] Steps to alleviate the late payment problem

Whether in private or public sectors, late payment can be a huge problem, especially for small firms which are the backbone of the UK economy. In the construction industry, where late payment has generally been a problem historically, a survey of 250 small construction companies in November 2012 found that 97% felt unfairly treated by main contractors, and just 5% of all work was paid for within 30 days.

The Government has taken various steps to tackle the problem in both private and public sectors. In November 2018, it announced that ‘any organisation that bids for a central government contract in excess of £5 million a year will need to demonstrate it has effective payment systems in place to ensure a reliable supply chain’.

Organisations who want to do business with the government must pay 95% of all supply chain invoices within 60 days. From 1 September 2019, organisations bidding for government contracts in excess of £5 million a year may be required to provide:

• Confirmation they have systems in place to ensure that organisations in their supply chain are paid on time, including that they have procedures for resolving disputed invoices promptly and effectively.
• Details about their payment performance, including the percentage of invoices paid within 60 days.

Firms not meeting the required standard are required to provide an action plan which sets out the reasons why and the steps they are taking to get back on track.

To set a good example, the government has committed under its Prompt Payment Policy to pay 90% of undisputed and valid invoices from SMEs within five days and 100% of all undisputed and valid invoices within 30 days. Government departments are required to report their performance against these payment targets on a quarterly basis.

Other attempts to tackle the problem of late payment have included:

• The Housing Grants, Construction and Regeneration Act.
• The Construction Supply Chain Payment Charter.
• Project bank accounts.

[edit] The Prompt Payment Code (PPC)

Administered by the Chartered Institute of Credit Management (on behalf of the Department for Business, Energy and Industrial Strategy (BEIS)), the PPC sets standards for payment practices and best practice. Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board. The Code covers prompt payment, as well as wider payment procedures.

Its three core tenets are:

• Pay suppliers on time
• Give clear guidance to suppliers
• Encourage good practice.

For more information see: Prompt payment code.

[edit] Related articles on Designing Buildings Wiki

• Cash flow.
• Causes of construction disputes.
• Construction client's charter.
• Construction supply chain payment charter.
• Fair payment practices.
• Housing Grants, Construction and Regeneration Act.
• Insolvency.
• Main contractor’s discount.
• Pay less notice.
• Payment notice.
• Progress on poor payment practices.
• Project bank accounts.
• Prompt payment code.
• Remedies for late payment.
• Scheme for construction contracts.
• The Late Payment of Commercial Debts Regulations 2013.

[edit] External references

• Prompt Payment Code.
• Government and industry join together to tackle late payment 28 October 2014.
• 2013 BIS discussion paper: Building a Responsible Payment Culture.