The government’s pledge to crack down on businesses that don’t pay their suppliers on time has now taken effect.
It says it only wants to do business with companies who pay their suppliers swiftly, many of which are small businesses.
From 1 September, businesses that fail to demonstrate prompt payment face being cut out of public sector procurement processes, and prevented from winning government contracts.
All is explained in the recently published Cabinet Office Procurement Policy Note (PPN 04/19) and supporting documents.
So-called “in-scope” organisations are all central government departments, their executive agencies and non-departmental public bodies.
The policy applies to major contracts, framework agreements and DPS’ where the total contracts awarded are anticipated to exceed £5 million (excluding VAT) per year – a change from the provisions in PPN 04/18 that focused on the annual value of each individual contract.
Organisations wanting to win public contracts will have to answer a set of selection questions to assess the effectiveness of their payments systems.
Successful bidders will need to confirm they have robust processes in place to pay at least 95% of their invoices within 60 days or more, and also conform with codes or standards of payment practices – including Regulation 113 of the Public Contracts Regulations (2015) where payment of some invoices is required within 30 days.
The questions are mandatory, save in exceptional circumstances where it would not be relevant or proportionate to do so.
Guidance for contractors is more detailed than previously, and includes evaluation methodologies to be applied when assessing performance on invoices paid. There are also new sections on statutory reporting requirements, invoices, action plans and the Prompt Payment Code.
The new system may take time to settle down as tier one suppliers make changes and reform their processes.
However, for small businesses and other suppliers that suffer from late settlement of invoices, the new payment regime would seem to be welcome news.
☛ Liz Fletcher is senior associate and Richard Lane is partner at law firm Bevan Brittan