25 January 2021: In most industries the big players can sometimes exert undue influence over their smaller suppliers by withholding or delaying payment for goods and services for a considerable length of time. Often a small supplier will do the majority of their work for just one larger customer and any such delays have an acute impact on their cash flow. It isn’t hyperbole to say that late payments can result in the closure of a business – we have dealt with many liquidations where the insolvency of a company was predicated on significantly late debtor payments.
The Prompt Payment Code (PPC) was introduced to tackle the issue and improve the supply chain for UK firms and parties who signed up to the PPC were encouraged to pay their suppliers on time, give clear guidance on payment procedures to their suppliers, and encourage good practice. Unfortunately, despite the introduction of the PPC and 3,000 companies signing up to it, poor payment practices are still common with many payments still being delayed well beyond the current 60 day target. For example, Carillion, notorious for late payment to its smaller suppliers, had signed up to the PPC before its collapse.
The government has therefore just announced that the PPC will be strengthened so that companies signed up to it will now be obliged to pay small businesses within 30 days – half the time outlined in the current PPC. It is currently estimated that late invoices totalling £23.4 billion are owed to businesses across the UK. In the ordinary course of business this puts significant pressure on the ability of the smaller companies to survive day-to-day but with the serious impact the coronavirus pandemic has had it is more important than ever that a culture of prompt payment and support for each other in the supply chain is established.
The changes coming into effect immediately are: requiring a company’s CEO or Finance Director or owner to personally sign the PPC; introducing a new logo for signatories to use in external communications; and acknowledgment as a condition of signing the PPC that suppliers can charge interest on late invoices. In addition, the new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days will be effective from 1 July 2021.
If you are having any issues in dealing with your debtors or have any insolvency queries generally please do not hesitate to contact any of the BRI management team.