NEW reforms to a Prompt Payment Code now means that companies signed up to the code will have to pay 95% of small business suppliers within 30 days of invoicing.
The announcement by the Government has been praised as a major milestone on the road to fairer payment terms.
The time for paying small businesses has now been halved and is said to have an immediate effect on cashflow which is crucial to small businesses.
According to the Federation of Small Businesses, 50,000 enterprises close their doors every year as a direct consequence of late payment.
Nearly 3,000 companies will have to abide by this code now which has been welcomed by an Employee Federation.
SNIPEF, the Scotland and Northern Ireland Plumbing Employers’ Federation, has welcomed a major milestone on the road to fairer payment terms for small businesses with sweeping reforms to the UK Government’s Prompt Payment Code.
Fiona Hodgson, Chief Executive of SNIPEF, said: “SNIPEF has been voicing its concerns about this damaging issue for many years now and the reforms to the Code announced this week will go a considerable way to easing some of the pressure on small business owners.
“It is particularly timely, since smaller companies need all the help they can get as the construction sector continues its uphill struggle to emerge from the grip of the pandemic and contribute fully again to the wider economy.”
Ms Hodgson pointed out that over years of listening to SNIPEF member companies and monitoring their concerns, the problem of late payment has always been at the forefront of the issues that affect them.
She said: “Late payment causes real hardship to businesses and has a knock-on effect. It has hit particularly hard over the course of this year on top of the restrictions the sector has faced, and I believe the reforms will be welcomed by ethical and responsible businesses.
“It is heartening that all the years of lobbying by the construction on this subject have secured a tangible result and we can assure our members that we will continue to fight for their place in a fair and competitive business environment.”
The requirement to pay small businesses within 30 days will become effective from July 1 this year.
The existing target to pay 95% of larger businesses within 60 days will remain in place.
Changes to the code which come into effect immediately include a requirement for the most senior person in a company to sign the Code personally; acknowledgement that suppliers can charge interest on late invoices; and the enablement of Code administrators to investigate breaches.
Gordon Matheson, SNIPEF Past President and former Chair of SEC Group (Scotland) said: “We can look forward now to quicker payment for all small businesses which are the life blood of the construction industry.
“There has never been a more important time to speed up payment than during the current pandemic.
“Hopefully, the small business commissioner will use these powers to strike off persistent late payers who use the money as free finance for their own companies.”