The required payment period for large businesses to small firms is to be halved from 60 days to 30 days, under reforms to the Prompt Payment Code (PPC). The new requirement will take effect from 1 July 2021. Other protective measures came into effect on 19th January 2021, according to a press release by the Office of the Small Business Commissioner.
The tightening of the rules is designed to help the Small Business Commissioner protect jobs, as SMEs recover from the impact of the coronavirus pandemic. Companies that have signed up to the PPC will be obliged to pay small businesses within 30 days of invoicing, rather than the previous 60-day requirement.
Poor payment practices are still a widespread problem, with around £23.4bn worth of outstanding invoices owed to UK businesses. Delayed payments lead to cash flow problems, and at a time when many firms are vulnerable, it can even cause them to go under. The crackdown is intended to tackle this issue.
From 19th January 2021, Finance Directors and CEOs of large businesses will be asked to take personal responsibility to commit to the Code, which will allow suppliers to charge interest on late invoice payments and enable breaches to be investigated. Any breaches will be published by the government to encourage compliance.
Interim Small Business Commissioner Philip King commented:
“Code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence. I encourage businesses of all sizes to implement ethical business practices and sign up to become a Code signatory and join us on our journey to aid business recovery post COVID-19”.
From 1st July 2021, firms signed up to the PPC will be obliged to pay 95% of invoices from small businesses—those with fewer than 50 employees, within 30 days. The target for larger businesses will continue at 95% of invoices to be paid within 60 days.
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