Labour dedicated much of their election campaigning to highlighting their desire to be a pro-business government. As part of this, they promised to ‘clampdown on the scourge of late payment’ to unlock ‘£20bn in unpaid invoices’ – though the detail on how this would be achieved was lacking.

Their manifesto shed only a little more light. They would require audit committees of big businesses to report on their payment practices in their annual reports – a well-meaning measure that’s unlikely to touch the sides of that missing £20bn.

But government’s latest revamp of its prompt payment strategy marks a positive step in the right direction – the question is, can it follow it up with the kinds of bold reforms IPSE are pushing for? 

A new Fair Payment Code

IPSE is proud to sit on the board of the Prompt Payment Code. The voluntary code, which was set up by government and the Small Business Commissioner, holds signatories to a gold standard of payment practices in exchange for being publicly recognised as a ‘prompt payer’. If a company fails to keep to the standard, the board has the power to throw them off the code – a power it has flexed numerous times against some high-profile businesses including Diageo and Unilever, to name a couple.

Now, Labour are reforming how this code works to reward businesses for paying suppliers quickly by establishing Bronze, Silver and Gold tiers – the highest being given to businesses that pay 95% of all their invoices within 30 days.

This newly-titled ‘Fair Payment Code’ is certainly a welcome move in the right direction towards normalising 30-day payments between buyers and suppliers, a timeframe that IPSE believes should be the UK’s standard payment term.

IPSE will continue to sit on the board and look forward to continuing this important work with the government and the Small Business Commissioner.

New requirement for large business to report payment terms

Currently, all medium and large-sized businesses are required to report their payment terms to government, who then make the data public. This includes the average number of days it took to pay small businesses and suppliers. IPSE has been urging government to do more with the records it collects.

The government now want companies to also publish this data in their annual directors reports, whilst placing a duty on company audit committees to have oversight of their firm’s payment practices. 

Whilst it’s positive that government is attempting to make payment terms front and centre of business leaders’ minds, it’s unlikely to shift the dial to the tune of £20bn.

We need bolder action on payment terms

The new Fair Payment Code may well incentivise some companies to consider their payment terms. But let’s face it, the vast majority can simply decline to even sign up to the Code, or drop off it with little in the way of repercussions.

What’s more, these reforms will not put an end to obscenely long payment terms. Legislation still states that businesses can agree to payment terms longer than 60 days provided it is “fair” to both parties. But this is too easy to ignore.

As many of you will be all too aware, the reality is that schedules of 60 days – offered on a ‘take it or leave it’ basis by omnipotent clients – are far from uncommon, whilst we’ve all heard of 90-day and 120-day terms being implemented. This is why IPSE called for the UK to match Belgium’s ambitious approach of deeming all contractual payment terms longer than 60 days to be null and void, thereby defaulting to the statutory schedule of 30 days. 

Companies have the technology to pay invoices within a matter of seconds. There is no excuse for requiring such long payment terms and for not issuing payment soon after the work has been delivered.

We’ve also called on government to tighten payment guidelines to clarify that an invoice becomes ‘active’ when it is received by an organisation – and not once it is passed to a specific team, person, or process.

We will continue to push the government on this, responding to their consultation on these changes and pressing the need for bolder reform when it comes to delivering fair payments for the self-employed.