Firms signing up to the Prompt Payment Code (PCC) will have to pay small suppliers within 30 days rather than 60 under a toughening of the requirements.
Under reforms to the PCC responsibility for payment terms will transfer to the top of organisations, with owners, CEOs or finance directors required to sign the code, and firms will have to accept interest payments on overdue invoices.
Despite 2,800 organisations signing up to the PCC, the government said poor payment practices “are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices”. There are £23.4bn worth of outstanding invoices impacting firms across Britain.
Under the changes, from 1 July signatories will have to pay 95% of invoices to small firms in 30 days. For larger firms the target will remain 60 days.
Small business minister Paul Scully said that the new UK payment rules will help "relieve pressure" on small firms.
Philip King, interim small business commissioner, said: "Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic.”
According to the Federation of Small Businesses, around 50,000 businesses close every year due to late payments.
To increase transparency, firms will need to use a logo to display their commitment to the PPC, while those administering the code will have the power to investigate breaches.
Kwasi Kwarteng, secretary of state for business, energy and industrial strategy, said: “I am determined to bolster the role of the small business commissioner with powers to issue legally binding payment orders, launch investigations and levy fines if needs be.”
Matthew Fell, chief UK policy director at the Confederation of British Industry, added: “Introducing new rules to drive faster payments to smaller businesses will strengthen supply chains, benefiting the firms that need it most, and shortening the road to recovery.
“Small companies are the backbone of the economy, but remain the most at risk from a late or unpaid invoice – particularly after months of pressure on cash flow. Businesses have been making good progress to improve payment practices, but more can be done.”
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