Last edited 30 Nov 2018

Prompt payment code

Contents

[edit] Introduction

The Prompt Payment Code (PPC) was created by the UK government in 2008 in response to a call from businesses for a change in payment culture. It established a set of principles for businesses when dealing with and paying their suppliers that commit them to paying on time and fairly. The Code is administered by the Institute of Credit Management (ICM) on behalf of the Department for Business Innovation & Skills (BIS).

Code signatories undertake to:

1: Pay suppliers on time:

  • Within the terms agreed at the outset of the contract.
  • Without attempting to change payment terms retrospectively.
  • Without changing practice on length of payment for smaller companies on unreasonable grounds.

2: Give clear guidance to suppliers:

  • Providing suppliers with clear and easily accessible guidance on payment procedures.
  • Ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers.
  • Advising them promptly if there is any reason why an invoice will not be paid to the agreed terms.

3: Encourage good practice:

More than 1,700 businesses and public authorities have committed to the Code. Approved organisations can use the PPC logo on their documentation and website.

[edit] Advisory Board

Responses to a 2013 BIS discussion paper, Building a Responsible Payment Culture suggested a need to make the Code ‘more robust and active’, and so in in October 2014, BIS announced that a new Prompt Payment Advisory Board would be created tasked with strengthening the Code:

  • Improving monitoring and enforcement.
  • Promoting awareness.
  • Providing advice on whether there is a need to update the Code.

The Advisory Board members are:

  • Aviva.
  • Barclays.
  • Bury Council.
  • City of London Corporation.
  • Confederation of British Industries.
  • Forum of Private Business.
  • Fujitsu.
  • Greggs.
  • Institute of Directors.
  • Skanska.
  • Stort Chemicals Ltd.

The Board was tasked with implementing proposals in Spring 2015 (ref. Government and industry join together to tackle late payment 28 October 2014). On 25 March 2015, a timeline was published to implement changes to the code and a new prompt payment code website went live.

Philip King, CEO of the Institute of Credit Management and co-chair of the Prompt Payment Code Advisory Board said:

“Having hosted and administered the Prompt Payment Code for BIS since its launch, we have seen the Code grow in stature, prominence and membership. The timing is now right for the Code to be further strengthened and developed as a key tool in helping to tackle the scourge of late payment and driving a change in business culture from top to bottom.”

[edit] Construction industry

Late payment of invoices is a problem for most suppliers of goods and services. In the construction industry, 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.

Other attempts to tackle this problem have included; the Housing Grants, Construction and Regeneration Act, the Construction Supply Chain Payment Charter, and the introduction of project bank accounts.

It remains to be seen whether the involvement of Skanska in the Prompt Payment Advisory Board will make a difference to the industry.

[edit] Carillion

With the collapse and liquidation of Carillion in January 2018, a renewed focus was placed on the payment terms that they had been operating with. Carillion had been a signatory of the Prompt Payment Code since 2013, stating that public sector payment terms cannot exceed 30 days on receipt of invoice.

Carillion caused controversy later in the same year when they introduced a reverse factoring Early Payment Facility while extending payment terms up to 120 days. This Facility allowed subcontractors to receive payment earlier than the 120 days in exchange for a fee.

At the time, there were calls from the industry for the government to exclude Carillion from any further PFI contracts. It is now thought that Carillion's 'aggressive' attitude towards supplier payments was one of the 'red flags' that encouraged hedge fund managers to start betting against the company's shares.

Subcontractors now believe that more than £350m owed to them via the Facility will never be paid.

The Federation of Small Business described the code as 'toothless' and called for the government to; '...step in immediately to strengthen the PPC by making it mandatory for all FTSE 350 businesses and introducing a tough penalty regime for those companies flaunting the rules.'

[edit] Updates

In November 2018, the government announced a new prompt payment initiative to ensure all suppliers and subcontractors on public projects/services are paid on time. If companies fail to demonstrate prompt payment to suppliers, they could be prevented from being awarded government contracts.

The initiative will come into force in Autumn 2019, to ensure that the government's business is limited to companies who comply with prompt payment practices.

In addition, the government plans to update Mystery Shopper, the free and anonymous complaints service, now called the Public Procurement Review Service. This will help suppliers raise complaints and concerns about procurements or the conduct of contracting authorities.

(Ref. https://www.gov.uk/government/news/crack-down-on-suppliers-who-dont-pay-on-time)

[edit] Related articles on Designing Buildings Wiki

[edit] External references.