Prompt payment reforms

Reforms to the Code

The Government announced reforms to the Prompt Payment Code (PPC) today, partially in response to the pandemic. Firstly, the changes will require signatories to the Code to pay 95% of invoices from small businesses within 30 days, starting from 1 July 2021. Currently the Code asks all signatories to work towards adopting 30 days as the norm, but sets 60 days as the maximum limit for 95% of invoices. The target for larger businesses will remain 95% of invoices within 60 days, however. Alongside this, business leaders (for example, a CEO or Finance Director) will be asked to personally sign the Code with immediate effect. Finally, the powers of the Small Business Commissioner will be strengthened, potentially through legally binding payment orders, issuing fines, and investigatory powers.

The importance of faster payments

Prompt payments help to maintain healthy supply chains. Large numbers of smaller businesses have faced severe cashflow pressures and measures to drive faster payments down through supply chains will help to support the economic recovery. Many ADS members are proud to be signatories of the PPC and have proudly stood by their smaller partners during this challenging period by making individual commitments to go further and faster with their payment practises. However, it is worth noting that the challenges facing our supply chains cannot simply be addressed through changes to the PPC, which is inherently voluntary. In addition, large businesses have not been immune to the impact of the pandemic.

Wider economic support needed

The pandemic has presented serious challenges to companies, both large and small, across our four sectors. The cumulative effect of depressed demand, restricted supply, and disrupted business operations has levied a heavy toll, none more so than to the aerospace sector where ongoing travel restrictions pose a threat to the long-term health of this industry, and consequently thousands of jobs. For that reason, ADS has been calling on the Government to enhance support for aerospace and our sectors’ supply chains through the COVID-19 crisis by providing additional business support and strategic funding for SME growth. In the longer term the Government must recognise the strategic role of ADS’s sectors and our members’ value to the economy through a refreshed industrial strategy, if the UK is to maintain resilient supply chains in future crises.

ADS will continue to work with members and stakeholders to ensure that the UK’s business conditions remain stable and predictable, and encourage the UK’s SMEs to grow and thrive. If you have any views or experiences with the PPC please do get in touch with the ADS Policy Team.