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Prompt Payment Code.

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Business practices and legislation to help you get paid.

The Prompt Payment Code (PPC) is a voluntary code of practice for businesses which sets the standards for payment practices between companies and their suppliers. It was established in 2008 and is administered by the Office of the Small Business Commissioner.

The PPC has 3 core points which the signatories are expected to adhere to. They are quite simple.

1.

Pay suppliers on time, within agreed terms
2.

Give clear guidance to suppliers on terms, dispute resolution and prompt notification of late payment
3.

Support good practice throughout their supply chain by encouraging adoption of the Code.

 

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The code currently has 3797 signatories and has had recent reforms which aim to further reduce late payments by:

* Confirming the requirement to pay 95% invoices within 60 days or else be publicly struck off the code until substantial improvements have been implemented.

*Introducing an added requirement that 95% invoices from small businesses (with less than 50 employees) must be paid within 30 days (effective from 1 July 2021 for existing signatories)

*Requiring small and medium sized signatories to report annually on their payment performance, on a comply of explain basis


* Requiring signatories to recognise the right of suppliers to charge late payment interest and charges if an invoice is paid late without justification

* Stating that applications to join the Code must be signed by the Chief Executive, Finance Director or, in the case of smaller businesses, the company owner

*Suppliers should be provided with a contact point for payment queries

Large business that submit data to the Government regarding their payment practices and report less than 90% of invoices are paid within 60 days are suspended from the Code until improvements are made and the PPC administrators can remove any company from the Code which it deems to have unsatisfactory payment practises and will be publicly announced via Small Business Commissioner's office.

As a summary, the PPC serves to improve payment practices between organisations and you can generally trust the signatories to settle their invoices in a timely manner.

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Changes to the Prompt Payment Code 

The Government announced in November 2018 that from 1 September 2019, any organisation that bids for a central government contract more than £5 million a year will need to demonstrate it has effective payment systems in place to ensure a reliable supply chain.

 In October 2021 the UK Government went further and published the Procurement Policy Note 08/21. For most major government contracts in excess of 5million GBP, there will be a tightening of the rules during the pre-qualification process relating to the timely payment of supply chains. 

This new procurement rule came into effect from April 1st, 2022, and includes: 

  • An automatic pass threshold of 95% of invoices paid within 60 days.  

  • This is measured over two 6-month calendar reporting periods. 

  • The next level threshold, wherein company's are not hitting the 95% target, will be between 90% and 95%. But companies must provide information on why you didn’t meet the threshold with an action plan to correct it.

  • The automatic failure threshold will be anything below 90% in the 60-day period. 

 

Whilst the procurement policy is separate from the Prompt Payment Code, it is effectively nudging businesses which are bidding for UK government contracts to conform to the code’s rules. 

So, Company's which have not signed up to the Prompt Payment Code, will still have to comply if they wish to bid for public sector projects. However if a company cannot show that they settle invoices within the timeframe, any bids you make for government work are likely to be rejected.  

The government also clarifies that new businesses that do not have a long record of paying suppliers (and so cannot prove compliance) will still be able to apply for government work.  

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