Business Minister Michael Fallon has warned big businesses that they will be publicly named if they fail to sign up to the Prompt Payment Code, a voluntary agreement to promote good payment practices.
The Minister has written to all FTSE 100 and FTSE 250 companies. The letter urges companies to sign up to the Code, which will be four years old in December, and warns that the names of any companies that fail to do so will be publicised in the new year.
The Institute of Credit Management’s Code demonstrates a commitment to good practice and signatories are obliged to pay their supplier within an agreed time and to make sure there is a proper process for any issues that may arise.
Business and Enterprise Minister Michael Fallon said: “Late payment causes real cash flow problems for entrepreneurs. It stops them from growing their business – we need to change the culture.
“Too many of our biggest companies are ignoring the Prompt Payment Code. My message to them is clear – make prompt payment a priority or face the consequences of being named. I’m confident that driving up support for the common sense principles in the Code will have a very positive effect.”
Currently 1,182 companies are signed up to the Prompt Payment Code. However, only 27 FTSE 100 companies and five FTSE 250 companies are signatories.
Chief Executive of the Forum of Private Business, Phil Orford said: “We welcome this initiative to encourage all large companies to sign up to the Prompt Payment Code, pledging to pay their suppliers on time and in full.
“All too often we see a ‘domino effect’ of late payment right down the supply chain. It decimates cash flow and forces many firms into administration – so it is important that we do whatever it takes to reverse this trend and set in motion a culture of prompt payment for small businesses and the economy as a whole.”
All signatories of the Prompt Payment Code are already publicly available online, but the government wants to be more pro-active in highlighting companies that are not committed to the code.
To support businesses on the issue of late payment of invoices the government is also advising businesses to:
- Agree payment terms before delivering orders.
- Make use of Supply Chain Finance schemes, which allow banks to offer loans to businesses when an invoice has been approved from the supplier. The Prime Minister has already written to FTSE 100 companies to encourage take up of this initiative which could deliver up to as much as £20 billion of new cheaper, finance to their suppliers, including many UK SMEs.
- Raise complaints through legal channels over late payment from Prompt Payment Code signatories and use legislation already in place to help companies pursue late payers and seek the relevant compensation available.
- Use electronic invoicing where possible, automating process and adding instant transfer of the invoice and instant verification from the customer that the invoice has been received.
- Use Get Paid!, a guide for small businesses which contains tips and advice from both suppliers and customers, that has been published by the Association of Chartered Certified Accountants (ACCA). It contains valuable lessons from small businesses such as advice on invoicing and developing a well-defined credit policy.
A debate on prompt payment issues took place in Parliament on 8 November 2012.