Government Crackdown on Late Payers Who Breach the PPC – Comments from the Experts

In breaking news today the UK Government has taken a firm hand with some big-name firms who have consistently broken the late payment code. Names, including Vodafone, Rolls-Royce Plc and DHL are among the big hitters that have been removed or suspended from the Prompt Payment Code for failing to comply. Some of the UK’s largest construction firms have also felt the wrath, including Balfour Beatty, Costain, Interserve and Laing O’Rourke.

The Chartered Institute of Credit Management (CICM) announced yesterday that 17 companies have been removed or suspended from the Code during the past quarter. Read the full list here. The Prompt Payment Code was established as a voluntary scheme which firms sign up to as part of a pledge to pay 95% of suppliers within 60 days in the public sector’s drive to crack down on late payments – in particular to shield SMEs from the late payment scourge.

The CICM has been consulting the new Payment Practices Reporting data, which large businesses are obliged to report, to see who is not meeting the standards of the timely payment code. Those who have failed to comply have been identified and a second wave of inspection is under way.

“Late last year, however, Cabinet Office (CO) minister Oliver Dowden announced serial slackers on supplier payments would be forced to ‘clean up their act’ or face being prevented from winning new contracts from September … If a company bidding for a contract has not paid 95 per cent of invoices within 60 days for two consecutive six-month periods, and can neither explain why nor show that they are putting it right, they may be excluded from the process,” reported City A.M.

Some of the companies named have agreed to make improvements and comply, going forward, to the code’s standards, and reinstatement is still possible:

“Businesses suspended from the Code are invited to produce an action plan setting out how they will achieve compliance with the Code within an agreed period. When they have achieved compliance their status as a Code signatory will be reinstated. If they do not, then they will be removed,” said the press release.

And Chair of the Prompt Payment Code Compliance Board admitted “The Board is disappointed with the actions of a minority who continue to treat their suppliers unfairly, and has no satisfaction in having to name them publicly.”

Justin Sadler-Smith - Head of United Kingdom & Ireland, SAP Ariba – commented:

"This is an overdue, but welcome initiative given the technology that exists today to fully support prompt payment to suppliers. In an increasingly uncertain world, the requirement to pay suppliers and particularly small to medium-size suppliers on time is critical to maintaining the stability of the supply chain through multiple tiers. Where companies fully adopt technology to support effective buying and payments, the resulting benefits through reduced processing time and the reduction of errors, mitigate any need to delay or lengthen payment cycles. In addition, companies can now look to dynamic discounting and supply chain finance to create that supply chain stability whilst fostering closer collaboration with their suppliers."

And Mark Bevan, a principal at Efficio, commented:

"Broadly speaking, this is a positive move by the UK regulator that compels businesses to take a more responsible approach to addressing this issue. As procurement professionals, we often focus on awarding business to suppliers and paying them for their products/services without fully appreciating how much our companies/clients depend on those products/services to operate and make money. It’s crucial that suppliers are paid when expected, as that is the basis on which they have agreed to supply you – otherwise they might not be in business for long.

When working with our clients, we often look at extending payments terms to increase working capital or reduce payment terms in return for discounts. But this isn’t decided on a unilateral basis and the impact to the supply base is seriously considered. Businesses should then stick to what has been agreed.

 The businesses called out by the regulator also need to consider the reasons why late payment is happening. Is it a conscious decision to hold back payment? If so, this should be reviewed collaboratively with the supply base instead of making a one-sided decision. Or is it an issue with processes that needs to be addressed – e.g. invoices lost in Inboxes? If this is the case, what changes need to be made internally to alleviate the problems?

The best way to address the issue is for businesses to regularly discuss it with their supply base and mutually agree a more flexible approach when required."


Disclaimer - the opinions expressed are those of the authors and not necessarily those of Spend Matters


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Voices (2)

  1. David G:

    Having read the SMH article today, this remains a HUGE problem throughout NZ and is strangling the working capital of everyday SMEs. Even though NZ is small, people don’t pay and simply disappear. How tough is too tough when it comes to chasing? I suggest looking at Money Hub to get an idea of how to chase with purpose. Can govt legisltate on this – I think not. But 90 day terms should be shamed like underpaying employees. Or having a ‘living trade terms’ period – i.e. 30 days max.

  2. cpu branded:

    Nice responses to this matter with real arguments around the topic.

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