Government payment code to help small firms’ cashflow

Small Business News

The Government has introduced a Prompt Payment Code to help increase the speed of payments from large companies to small businesses.

Drawn up in partnership with the Institute of Credit Management (ICM), the voluntary code aims to encourage prompt payment of invoices and encourage good practice in business to business deals.

Leading suppliers are being urged to pledge their commitment and use it to underline their reliability. Asda, British Gas and John Lewis Partnership have already signed up to the initiative.

While the code does not specify how quickly companies should settle their bills, it states that companies should ‘pay suppliers on time within terms agreed at the beginning of a contract.’ Suppliers will be able to raise concerns about late payers on the ICM website.

Lord Mandelson, Business Secretary, said the initiative would help small firms to balance their finances in the current economic climate.

“The code focuses on ensuring firms pay their suppliers on time and don’t attempt to change their payment terms retrospectively,” he said. “This will be essential to help smaller firms maintain cashflow in the months ahead.”

Welcoming the code, the Institute of Directors (IoD) head of parliamentary and regulatory affairs, Alexander Ehmann, said following the Government’s recent commitment to ten day payment terms, it was important that the business community was also brought on board.

“Recent IoD research shows that 95% of all those experiencing worsening payment flows are having these issues with large and medium–sized businesses,”

“Businesses now need to ensure that the principles of fairness, timeliness and clarity are applied to their own contractual relationships with smaller suppliers,” added Ehmann.

According to credit agency Graydon, the code will do little to help small firms. Graydon managing director Martin Williams said:

“We have lived with a late payment culture in the UK for many years now, and big companies know they can flex their muscles and delay payments to smaller firms if they have to,”

“In the current economic climate, many bigger firms may not even have the luxury of deciding when they want to pay, because they’re likely to be suffering from cashflow issues just like everyone else. It is highly unlikely that this latest move will make a tangible difference.” he added