Prompt Payment Code: Signatories Not Enough

Prompt Payment CodeLast week it surfaced that fewer than 1 in 5 of the UK’s largest companies have signed up to the government’s new Prompt Payments Code (PPC), which would ensure suppliers get paid within an agreed timescale.

This comes nearly 3 months after Michael Fallon, business and enterprise minister, wrote to all FTSE 350 companies asking them to sign up.

Fallon is right to name and shame those who refuse to sign-up, as these businesses are crippling the shoots of business recovery at the most vulnerable level.

Rather than using their size to demand longer and more lenient payment times, these large companies should take the lead and pay their suppliers in a more timely fashion. After all, without these suppliers they would not be able to operate. Government departments, such as the NHS, should also be setting an example to the rest of the business community. They should be creating the environment of prompt payments that the government is trying to instil through the Code.

The PPC means that, by each company endeavouring to pay suppliers on time, there is no bottle neck effect causing a cash shortage at the end of the chain. When this occurs, often the smallest companies are most at risk. Small companies have a huge impact on the state of the UK economy. We need to nurture them and help them grow, not strangle them through excessive late payments.

Recent ONS figures showed that 99.5% of all the businesses in the UK are classified as small or medium sized. These SMEs account for 60% of jobs and almost 50% turnover in the UK. These numbers are staggering. If they are not paid on time, the knock on affect would be to negatively impact both the national turnover, and the job market.

With a clear knowledge of when money is coming out and a smooth cashflow, these businesses can flourish. They can produce increasing turnover, and employ more people. These are two key factors that will help bolster the economy, and push us further away from the dreaded recession.

Fast payment isn’t all that the PPC is about. It is about encouraging best practice, something that sorely needs improving across the board. Best practice in setting out clear and accessible guidance to suppliers, opening up the conversation so everybody knows what to expect and can plan accordingly. Best practice in communicating clearly throughout the supply and payment process. Best practice in dealing with disputes, should they arise.

With the largest companies stockpiling cash, it is inevitably the smaller companies at the end of the supply chain that will suffer. With concerns about so called “zombie-companies” dragging down the economy, this has to stop. If Michael Fallon and his department have to ‘name and shame’ companies into paying their suppliers on time, they must march forward with this course of action. It is unfortunate that this situation has come to this, but all companies deserve to be paid in a reasonable and timely fashion, regardless of their size.

About IGF

IGF is an independently managed commercial finance company specialising in the small and medium sized business market, particularly companies from new start up to £10 million turnover per annum.

Part of the Greater London Enterprise Group of Companies, an economic development and investment company owned by the London Boroughs, IGF was established in 1997 and provides working capital funding, sales ledger management facilities, credit control services, bad debt protection, direct debit facilities, debt recovery services, payroll facilities and commercial finance for companies nationwide.

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