Payment for small firms - Change in Government policy

Contractors signed up to the Prompt Payment Code will have to pay small businesses within 30 days, the government has announced.

Under changes to the current rules, the 60-day payment time is to be cut for payment to firms with less than 50 employees. From 1 July 2021, they will be expected to pay 95 per cent of their invoices within the period, or they could face sanctions, such as suspension from the code. Government best-practice guidance already says invoices should be settled within 30 days, but the Prompt Payment Code standard is 60.

The target time for paying larger businesses will remain at 95 per cent of invoices within 60 days, a statement from the government said.

It also announced that company CEOs or finance directors will be obliged to personally sign the code to show responsibility for prompt payment is being taken at the highest level of a company.

Administrators of the code will also investigate breaches based on third-party information from now on, it added.

Last week, Construction News analysis showed that the median time taken by the 100 largest contractors to make payment is 41 days, a slight improvement on the previous analysis. Nearly a third of all payments breached terms, usually meaning an agreement to pay at a deadline beyond 30 days was also missed.

Small business minister Paul Scully said: “Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK.

“Today, we are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime – pushing big businesses to pay their suppliers on time.”

A raft of construction firms were publicly suspended from the code in 2019 after a naming and shaming process was introduced. They have all since been reinstated.

Federation of Small Businesses (FSB) national chairman Mike Cherry said: “A late payment crisis was massively stifling the UK economy before COVID hit. The pandemic has deepened it.”

He welcomed the changes and added: “Ending our pernicious poor payment culture for good over the coming months will be fundamental to turning our hopes of economic recovery into reality.”