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Last edited 28 Dec 2021
Prompt payment code
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.
- 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:
- By requesting that lead suppliers encourage adoption of the code throughout their own supply chains.
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.
- Bury Council.
- City of London Corporation.
- Confederation of British Industries.
- Forum of Private Business.
- Institute of Directors.
- 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.
“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.”
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.
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.
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.'
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.
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.
In April 2019, six major contractors were suspended from the Code for failing to pay suppliers on time, and John Sisk & Son were removed altogether. Ref https://www.cicm.com/quarterly-update-17-businesses-removed-suspended-prompt-payment-code-failing-pay-suppliers-time/
In July 2019, CICM anounced that eighteen companies had been suspended from the Prompt Payment Code for failing to pay suppliers on time. Costain was reinstated when it agreed to move all its suppliers onto payment terms of 45 days or less, increase the frequency of payments and improve processes.
In October 2020, the Cabinet Office announced that Policy Procurement Note PPN 07/20 would come into force on 1 April 2021, requiring that contractors bidding for government contracts above £5m must show they pay 85% of invoices within 60 days and have a plan to reach 95% in the future. The 85% threshold will be “ratcheted up” over time until it reaches 95%. Ref https://www.constructionmanagermagazine.com/payment-standards-beefed-up-for-government-contracts/
On 19 January 2021, the government announced reforms to the Prompt Payment Code to encourage companies to stand by smaller suppliers. Companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days - half the time outlined in the current Code. Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledging that suppliers can charge interest on late invoices under the Code and that breaches will be investigated. Ref https://www.gov.uk/government/news/government-tackles-late-payments-to-small-firms-to-protect-jobs
- Cash flow.
- Causes of construction disputes.
- Collaborative practices.
- Construction client's charter.
- Construction supply chain payment charter.
- Fair payment practices.
- Housing Grants, Construction and Regeneration Act.
- Net zero commitment will be required for major government contracts.
- Procurement policy note PPN.
- Prompt Payment Code boosted to help SMEs.
- Prompt payment code: the story behind the headlines.
- Progress on poor payment practices.
- Project bank accounts.
- Remedies for late payment.
- Scheme for construction contracts.
- The Late Payment of Commercial Debts Regulations 2013.
 External references
- Government and industry join together to tackle late payment 28 October 2014.
- 2013 BIS discussion paper: Building a Responsible Payment Culture.
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