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The Prompt Payment Code – a lifeline for SMEs?

Prompt payment

It’s a commonly stated but important fact that businesses need sustainable cashflow to pay staff wages, rates and suppliers. But, of the many challenges facing SMEs, late payment from customers is a reoccurring theme placing significant pressure on cashflow.

Findings from our Q3 SME Confidence Tracker reveal that two fifths of SMEs (39%) think late payment is a significant threat to their business over the next 12 months. More than one in ten consider it the biggest challenge they currently face.

It’s clear that more needs to be done to support SMEs, but what help is currently available?

The Prompt Payment Code (PPC) is administered by the Chartered Institute of Credit Management and looks to ensure that SMEs are paid on time. According to the PPC, suppliers should be paid within 30 days, with 60 being the maximum number of days suppliers should wait for payment, unless there are “exceptional circumstances”. Such exceptional circumstances are reviewed on a case-by-case basis by the PPC  Compliance Board.

But while the Code provides support for businesses on an individual basis, perhaps more importantly, the PPC is tasked with tackling the wider culture of late payment that is rife throughout the UK.

Government focus

Recently appointed Minister for Small Business, Consumers and Corporate Responsibility, Margot James, confirmed the Government’s support for the PPC in September in a  letter to PPC signatories.

In her letter backing the Code, James wrote that  “prompt payment can make all the difference to small businesses, boosting their cashflow and allowing them to invest in growth for the future.”

Even more recently, at the Conservative Party Conference in October, James branded late payment “a blight on small companies” and vowed to tackle late payment  of SMEs by larger businesses.

Indeed, the Department for Business Energy and Industrial Strategy (DBEI) – the successor to the Department of Business Innovation and Skills – believes it is leading by example.  The DBEI has committed to a target of paying 80% of undisputed invoices within 5 days and the remainder within 30 days.

But the code is by no means a quick fix to the long-established culture of late payment, which is so problematic for SMEs – particularly those in the supply chains of larger businesses.  The PPC is not legally binding. It is voluntary and therefore rests on the good example of leading businesses to encourage others to do the same.

While unlikely to happen overnight, this transformation must be continuously championed by government and embraced by businesses throughout the country.

Does your business suffer from late payment? Read our handy guide on how to reduce the impact of late payment here.

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