Home Business News Prompt Payment Code reforms aren’t good enough, government must do more to tackle late payments

Prompt Payment Code reforms aren’t good enough, government must do more to tackle late payments

3rd Jun 21 12:47 pm

When the Government announced reforms to the Prompt Payment Code (PPC) earlier this year, signatories became obliged to pay small businesses within 30 days, down from 60 days, effective 1 July 2021. With just under a month to go, we acknowledge this is a step in the right direction – but we need to see more action if the UK’s small businesses are to thrive and regain a healthy cash flow, especially in the current climate.

According to official statistics, there is £23.4 billion worth of late invoices owed to firms across Britain. However, the issue of late payments is more than just a problem of numbers. Even at the best of times, the emotional toll of late payments for business owners is incalculable: sleepless nights, stress and anxiety, leading to an unhealthy work/life balance. This is not new, and requires urgent action.

Improving payment terms is an important first step. But as it stands, the PPC doesn’t go far enough. The following are just some ways the Government can give UK small business owners the protection and peace of mind they deserve. This is crucial as small businesses look to survive and thrive in a post-pandemic and post-Brexit environment.

Issues with the Payment Prompt code

A big challenge when it comes to the PPC is that it’s not mandatory. It currently has only 3,100 signatories, out of an estimated 8,000 large businesses in the UK. 

In theory, small businesses can use the PPC to help them be selective about who they choose to work with and to give them a route to charging interest for overdue amounts. However, in practice, small businesses are, and will remain, in a position of weakness relative to their larger customers. Few business people will run the risk of losing a deal by charging interest or consider walking away from a contract because the customer hasn’t signed the PPC.

Additionally, while it’s great to see the reforms reducing payment terms for businesses with fewer than 50 employees, we know more than 95% of UK businesses are micro-businesses with 0-9 employees. This is a huge chunk of companies supporting Britain’s economy that are unsupported by the PPC. For these businesses, every invoice could be the difference between surviving or shutting up shop. Equally, just because you have 50 employees doesn’t mean that you can afford to wait 60 days to get paid.

More power to the Small Business Commissioner

The Small Business Commissioner (SBC), a role created to shed light on bad payment practice, has done a lot to raise awareness of the problems caused by late payments. It’s great to see the SBC ‘naming and shaming’ companies breaking the code. It’s also encouraging to see some businesses (like Tesco, who recently pledged instant payments until 2022 for small business suppliers), voluntarily going far beyond it.

However, to drive real change there needs to be incentives for adhering to the code and consequences for breaking it. The Government giving the SBC more power – to punish and reward – is a key next step in making that happen.

Capitalising on technology solutions

UK SMEs’ ability to utilise technology – whether that be cloud-based tools to manage their business or innovative solutions powered by Open Banking – will go a long way to solve the issue of late payments and add to their productivity and competitiveness in the post-Brexit era.

Therefore, the Government should be doing more to encourage and smooth the process of adopting technology. Choosing the right solution can be daunting for small businesses – it takes time and investment, and many don’t know where to start.

The Government’s Help to Grow scheme, announced by the Chancellor in his Budget speech in March and launching this month, should help to overcome some of these initial hurdles. But again, we need to see more commitment from the Government to ensure that tech adoption remains on the national agenda. One way to maintain momentum is to appoint a Minister for Small Business Technology to keep the Government accountable.

Small businesses are the lifeblood of our economy. The past year has been hugely challenging for them and we’re not out of the woods yet. The impact of late payments on financial, physical and mental health has been amplified by the pandemic. If we want small businesses to continue to thrive, the Government, industry along with the Small Business Commissioner need to up their game to tackle late payments once and for all.

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