The IoD has welcomed recent changes to the government-backed Prompt Payment Code, which now states businesses should pay suppliers within 30 days as standard.
The updated legislation, announced by business minister Matt Hancock yesterday (26 February), will also include the launch of a new enforcement body which will eject companies from the register should they fail to comply.
With two-thirds of the IoD’s SME members suffering from late payments (half of whom blame bureaucracy at large companies for the delay), the IoD has welcomed the changes.
“This is a sensible approach to dealing with the pernicious scandal of late payments,” says James Sproule, chief economist at the Institute of Directors and member of the Prompt Payment Code advisory code. “For too long, small and medium-sized businesses have been squeezed as companies delay paying their invoices and stretch payment terms. Tightening up the voluntary Prompt Payment Code will help address this.”
“Putting public pressure on the worst offenders is a key step in transforming the disparity of power between big business and their suppliers. This is a much more effective remedy than legislation, and will encourage smaller businesses to speak up. A long-term solution requires a culture change, and this is something heavy-handed regulation cannot address.
“Many big businesses will need to reform the way they pay suppliers. Two-thirds of the IoD’s SME members have suffered from late payments… This isn’t acceptable. It’s time for all companies to honour the commitments they made when they signed up to the Prompt Payment Code.”
The government created the Prompt Payment Code last year to encourage businesses to speed up payment times. However, its voluntary nature drew criticism from many in the business community. The updated legislation will now promote 30-day terms as standard, with a 60-day maximum limit. If signatories fail to prove exceptional circumstances for longer terms, they will be removed from the Code.
Recent data published by direct debit company Bacs Payment Schemes suggested that the sums SMEs are owed through late payments totals £39.4bn.