Tackling client late payments: The Fair Payment Code and new Bill

The relationship between suppliers and their customers is of crucial importance for many businesses, but for these partnerships to endure, they must be mutually beneficial. We are often asked to analyse supply chain ESG risks and produce responsible procurement plans and policies. Naturally these projects tend to focus on what suppliers are expected to do – abide by Codes of Conduct, offer whistleblowing services, etc. – but the other side of the coin is what companies can do to support suppliers. Something that may seem obvious - but is unfortunately not always practised - is paying suppliers quickly and fairly. 

Why pay fairly? 

Aside from the clear benefit of building strong relationships with your supply chain, the other key benefit is that you are playing your part in preventing other businesses failing. 14,000 businesses close each year as a result of late payments. This has knock-on impacts for the economy as well as huge personal impacts for the individuals that own and work for those businesses. 

If you can externally demonstrate that your company pays suppliers fairly through the likes of the Fair Payment Code, then it can help you attract the best suppliers/contractors, and can boost your company’s brand in the eyes of customers, investors and other stakeholders. Further, if The Small Business Protection (Late Payments) Bill is enacted, then big businesses failing to pay appropriately could find themselves facing large fines (potentially up to tens of millions for persistent offenders).   

What is the Fair Payment Code? 

The Fair Payment Code is a voluntary framework that defines fair payment good practice and recognises organisations that meet these standards. It is a government scheme run by the Small Business Commissioner and builds on the previous government’s Prompt Payment Code. 

Under the scheme companies that can evidence (with data and supplier references) that their payments meet defined thresholds (see below), and that they operate in a clear, fair and collaborative manner, are recognised with certification.

• Gold Award: Pay at least 95% of invoices within 30 days. 

• Silver Award: Pay at least 95% of invoices within 60 days, and at least 95% of invoices to small businesses (under 50 employees) within 30 days. 

• Bronze Award: Pay at least 95% of invoices within 60 days. 

There are no fees to this certification. 

At Rawstone we are proud to have achieved the Gold Award. 

The Small Business Protection (Late Payments) Bill 

We don’t know the final shape of The Small Business Protection (Late Payments) Bill, as it only just started the Parliamentary review process on Friday 19^th May but the original Bill proposes: 

• Capping payment terms. Making it illegal for contract terms and conditions to include payment terms greater than 60 day. 

• Penalising late payments. Mandatory charging of interest at 8% above the Bank of England base rate for late payments. 

• Enhancing enforcement. Giving new powers to the Small Business Commissioner to adjudicate, investigate and fine late payments. 

  
  

This is expected to apply to large companies. 

Implications 

Although the details of The Small Business Protection (Late Payments) Bill may change, the direction of travel is clear. Voluntary fair payments haven’t worked adequately and so legislation will be enacted.   

Companies now need to prepare for this. Large companies should review their payment practices and plan for the Bill as it stands. Smaller companies should enjoy the fact that the challenges of late payments may go away and take this an opportunity to seek Fair Payment Code certification. 

For help with your responsible sourcing approach, including Fair Payment Code certification, contact us. 

Authored by: Caroline Johnstone.

Photograph credit: Picture by Simon Dawson and 10 Downing Street.