CBI secures strengthened support for businesses small and large in reformed Prompt Payment Code

The Department for Business, Energy and Industrial Strategy (BEIS) has published reforms to the Prompt Payment Code, with a headline change that means, from July 2021, all Code signatories will need to pay invoices from small businesses (50 employees or fewer) within 30 days.

Since the Prompt Payment Code’s introduction in 2008, signatories to the voluntary Code have until this year been required to pay 95% of invoices within 60 days, with a commitment to working towards 30-day payment terms. Now, the reforms will require all Code signatories, regardless of their size, to pay 95% of invoices from small businesses within 30 days. This is alongside the continued overall commitment to pay 95% of all invoices in 60 days.

The Prompt Payment Code has been criticised in the past for lacking the means to compel Code signatories to improve their practices. Small businesses supplying to some Code’s signatories would report consistently receiving payment beyond the 60-day commitment, despite this being the criteria for a business to sign up to the Code.

The Code gained greater weight when a new, separate legal requirement for large businesses to report their payment practice data every six months was introduced in 2017. This gave the Prompt Payment Code data which it could use to identify poor practices and suspend signatories. The introduction of this data immediately helped focus businesses on their performance on payment speed and reliability generally. Reforming the Code was a next step in giving government and businesses an opportunity to strengthen the Code’s assistance to firms that need it most.

What did the CBI do?

In September 2020, the CBI held a roundtable discussion with the BEIS Minister for Small Business Paul Scully MP, and Philip King, interim Small Business Commissioner at BEIS. This brought together CBI members from a range of sectors and standpoints to put views on the proposed Prompt Payment Code reforms directly to key government decisionmakers.

The CBI used this roundtable and further consultation with members to produce our response to the government’s consultation on the proposals. Members can read and download the CBI response below.

What did the CBI recommend?

Smaller businesses are most at risk from late payment. One substantial invoice, paid late, can be the difference between whether a small firm can pay its employees on time or not. While longer payment terms – where they are agreed and followed – are not the same thing as late payment, CBI members of all sizes recognised that speeding up payment to small firms helps secure cashflow and strengthens the resilience of supply chains.

The CBI argued that this should be the key objective of the Prompt Payment Code: supporting faster payment to small businesses to aid better cashflow and business planning. The CBI also argued that the role of the Prompt Payment Code should not be to disrupt longstanding commercial agreements between large firms, where 60-day or longer payment terms can often be agreed to the mutual benefit of both parties, particularly where goods or services are delivered over months or years.

The CBI’s members also agreed that measuring the “percentage of invoices paid to terms”, regardless of the length of payment, remains a key indicator of a business’s performance and reliability, and should remain an important principle of the Prompt Payment Code. Through this measure, suppliers can assess whether a business does in practice what it promises in its contracts, before working with them.

CBI chalks up two key wins

The CBI’s response advocated for reform of the Code that goes further in support of smaller businesses while avoiding unnecessary disruption to markets. The CBI welcomed the Prompt Payment Code’s new measure that will ensure signatories adapt their practices so that small businesses receive payments in 30 days or sooner. We are communicating the changes to our members and helping prepare businesses ahead of the introduction of the new measure in July 2021.

The CBI also welcomed the Prompt Payment Code’s retention of the existing overall performance measure, paying 95% of all invoices in 60 days, which includes the payments made to small businesses. The CBI argued for this to remain, recommending that efforts made by a business to speed up payments to small firms should be reflected in any resulting improvement to their overall payment performance against the 60-day target.

Keep in touch

The government is shortly expected to announce the outcome of a consultation into the powers of the Small Business Commissioner. Allied to the strengthened Prompt Payment Code, the Commissioner can help accelerate improvement in business-to-business payment practices. The CBI looks forward to supporting both initiatives, championing best commercial practices and ensuring companies small and large continue to do business transparently and successfully.

With a reformed Prompt Payment Code now launched, how will your business be impacted? Are you a Code signatory that will now make changes to your commercial practices? Are you a supplier that will now receive faster payments from your customers? Let the CBI know by contacting Tim Miller.