Prompt Payment Code – Is the public sector playing by the same rules?
The Prompt Payment Code was created by the UK government in 2008 in response to a call from businesses for a change in payment culture.
It sets standards for payment practices and best practice and is administered by the Chartered Institute of Credit Management (CICM) on behalf of the Department for Business, Energy and Industrial Strategy (BEIS). Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board and covers prompt payment, as well as wider payment procedures.
Are all construction businesses on a level playing field?
Seven months after being kicked off the Prompt Payment Code in April this year, Laing O’Rourke the country’s largest private builder has been reinstated after cutting the average amount of days suppliers have to wait by a third.
Its latest payment practice report revealed its average payment time in the six months to 30 September was 34 days – compared to the 52 days it was taking in the previous six months.
It also improved the proportion of supplier invoices it paid within 60 days, with this figure jumping from 57% to 79%.
Whilst the reinstatement is good news and a step in the right direction for Laing O’Rourke, it has criticised clients for taking too long to settle their bills, singling out slow payers in the public sector in particular.
It said that public sector clients need to settle their bills more quickly to prevent tier 1 contractors running out of cash. In a note to their latest report and accounts filed at Companies House, it highlighted a further problem tier 1 firms and subcontractors are experiencing in that lending to these had reduced “due to a loss of appetite for the sector by UK banks” and the dwindling availability of bonding and guarantee facilities.
Alongside this increased pressure in lending capacity the business has experienced a continuation in a traditional approach to payments to tier 1 contractors by many of their clients, particularly within the public sector.
Laing O’Rourke also said that “all parties involved in the sector must collaborate to provide a modern approach to payments and providing adequate working capital to avoid the current hand to mouth trickle down of liquidity.”
Prompt Payment Code signatories undertake to:
1: Pay suppliers on time:
- Within the terms agreed at the outset of the contract.
- Without attempting to change payment terms retrospectively.
- Without changing practice on length of payment for smaller companies on unreasonable grounds.
2: Give clear guidance to suppliers:
- Providing suppliers with clear and easily accessible guidance on payment procedures.
- Ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers.
- Advising them promptly if there is any reason why an invoice will not be paid to the agreed terms.
3: Encourage good practice:
- By requesting that lead suppliers encourage adoption of the code throughout their own supply chains.
In July this year, the then Minister for Implementation, Oliver Dowden reminded public sector organisations such as schools, hospitals and government departments of the need to pay their suppliers on time and set an example for the private sector.
He said, “We are being very clear with government suppliers that they must pay their supply chain on time or face losing future government contracts.
“So it’s only right that we say to the public sector that they must lead by example and make sure their suppliers are paid on time.”
Watch this space!
If you are experiencing problems within your supply chain or require advice with regard working capital or funding contact us.
The information was correct at time of publishing but may now be out of date.