By the time you read this the new Fair Payment Code should have been launched. It replaces the 16-year-old Prompt Payment Code and aims to drive improvements in business-to-business payment practices in the private sector.
The Fair Payment Code will be administered, like its predecessor, by us at the Office of the Small Business Commissioner (OSBC) on behalf of the Department for Business and Trade (DBT). We’re friendly and helpful so we’ll be around to answer questions, help on applications and most of all to support firms that are committed to improving. We don’t bite, unless a firm that has been given an Award under the new Code isn’t living up to its claims. The Code is voluntary but once you’ve committed to it you are expected to abide by the rules and meet the criteria or you’re off.
- The new Fair Payment Code has a tiered system of Awards which is aimed at awarding best practice and driving improvements in payment performance.
- The tiers are Gold, Silver and Bronze categories underpinned by fair payment principles.
- The Fair Payment Code is more ambitious, aspirational and robust than the Prompt Payment Code it replaces.
Ambitious
While we want the businesses to apply and go for Gold, any businesses can apply for the award tier which best suits them: Gold, Sliver or Bronze. The Code will award the best payers and encourage the others to improve to move up the tiers. You can apply for:
- Gold Award – if you are paying at least 95% of all your invoices within 30 days
- Silver Award – if you are paying at least 95% of all invoices within 60 days, and at least 95% of invoices to small businesses (with fewer than 50 employees) within 30 days
- Bronze Award – if you are paying at least 95% of all your invoices within 60 days
Paying everyone in 60 days may not seem ambitious but it’s much better than a lot of current payment practice, clearly signals anything longer than 60 is a no-no, and is aimed at getting as many firms into the system as possible and then driving them on to move up the scale.
On top of that every applicant to the Code must commit to abide by the code’s principles of being Clear, Fair and Collaborative with their suppliers.
Aspirational
The FPC is aspirational. We will be supporting businesses to improve payment practices and helping them move up from Bronze to Silver, and to Gold. We know this can take time, money and commitment but in the end, everyone benefits from much more sustainability and resilience in supply chains and from the certainty over payments that allows smaller businesses to invest in skills, equipment, innovation and pushes better goods and services back up the chain to customers and their customers.
Robust
The Fair Payment Code Awards are for two years, and every business will need to reapply for their Award at the end of each two-year period. There will be checks to make sure award applicants aren’t claiming to pay better than they are. There will also be a robust and confidential complaints system so businesses can highlight to the OSBC if they find customers have been given an award but aren’t meeting the Code requirements.
But what’s fair I hear you ask.
Fair is one of those words that can be interpreted, disputed, debated. I’d say that people instinctively know what’s fair and what isn’t. They make the choice to act fairly or not.
It’s not fair to contract for goods or services and not pay for them quickly. 30 days feels about the maximum in most cases or sooner where possible. 60 should be tops even in some more complex sectors like construction and manufacturing, otherwise smaller firms may be unable to manage their cashflow. It’s not fair to write a contract that says we’ll take delivery of the goods or services and then make you wait for 90/120 days to get paid. What would your employees say if you asked them to wait 3 or 4 months to get paid?
You could claim it was fair to pay in 120 days because the supplier had agreed to that, but as the bigger customer with the deeper pockets, it’s not fair to use your power to push the smaller supplier into accepting those longer payment terms. It’s not fair to use your suppliers to bankroll your own business ambitions. And it’s not fair that your procurement department should tell a supplier that they’ll be paid in 30 days when they know or should know that the company has a long, convoluted approvals process for invoices, or a single payment run each month that means in reality the suppler won’t get paid for weeks longer than led to believe. 30 must mean 30 days from the day the invoice is submitted to the customer, or the contractual negotiations have misled the supplier. And it most certainly isn’t fair to dispute invoices on purpose, or to quibble over minor errors that could easily be corrected, just so that you can delay paying them.
We want to see fair treatment of suppliers. How would you expect to be treated? We would love small suppliers to walk away from firms that pay badly but we know they are too scared of losing the work to do that, so we want the Code to help drive better payment practices for the good of supply chains, wider society and the entire economy.
Businesses can apply of any Award level of the new Fair Payment Code on the OSBC website.
