4th February 2014
Business groups have called for reform of the Prompt Payment Code (PPC) after data showed that more than half of Federation of Small Businesses (FSB) members were not paid by the agreed date.
Set up in December 2008, the PPC is a Government-backed scheme designed to encourage businesses to pay their suppliers on-time and within clearly defined terms.
The FSB has called on the Government to strengthen the PPC to make it simpler for firms to take action over late payments, and for a culture change among large private sector businesses that repeatedly pay late.
The survey of 8,000 FSB members found that 51 per cent of businesses providing goods and services to large businesses were paid late during 2013.
The FSB data reveals:
- 34 per cent reported late payments led to reduced profitability
- 32 per cent said late payments forced them to pay their suppliers late
- 29 per cent said late payments were restricting business growth.
John Allan, national chairman of the FSB, said:
"As the economy gets stronger we must do everything we can [to] help businesses and late payment is an issue the Government and large businesses must tackle. Small businesses simply can't be expected to lend interest free to their large customers, which is in effect what extended payment terms and late payments results in."
Matthew Fell, director of competitive markets at the Confederation of British Industry (CBI), joined the FSB in calling for reform:
"It's unacceptable that many firms are being held back from growing and creating jobs because they are owed thousands of pounds.
"We want to see companies explain their supplier payment policies clearly on their websites. And we want to see the introduction of a target maximum payment term, with some built in flexibility for more complex contracts."
The CBI has published a list of recommendations to reform the PPC:
- All companies should publish their supplier payment policies
- Introduction of a flexible 'target' maximum payment term
- Government guidance on the legal term 'grossly unfair' in contract law so businesses have confidence when negotiating payments
- Large businesses give clear guidance about their payment processes on their websites.
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