Wednesday, 17 December 2014 14:42

Patching up the Prompt Payment Code

It doesn't matter how much you like a bucket; if it won't hold water anymore, it's time to get a new bucket, and that is just what the government needs.

They are now embarking on yet another review of the Prompt Payment Code to try and make it actually work, and their plan to do this is to take advice from organisations like the City of London Corporation, Aviva and Barclays.

Unless you count more 'working class' brands like Greggs and Skanska, also on the panel, there's not much of a voice for the little man on the newly formed advisory board.

To be fair, the board members were selected because they have committed to the PPC and upheld its values, and their role now is to:

  • Promote awareness of the Code;
  • Improve monitoring and enforcement the Code;
  • Advise on updates to the Code.

But that is not a ringing endorsement on the PPC some SIX YEARS since it was first introduced, if people are still not aware of it and work is still needed to update it and actually enforce it.

Matthew Hancock, business minister, said:

"Late payment continues to plague businesses, putting a strain on cash flow and preventing plans for growth.

"We have committed to tackling this problem, but there is no silver bullet. This is about a change in culture, which needs businesses and government to work together."

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The Bucket List

In a sense, Mr Hancock is right - there is no single solution to late payment, and a culture change is needed - but rewriting the Prompt Payment Code is not a culture change, it's just another empty instrument waiting to be used.

The culture change that is needed is for small businesses to start using the legislation they have at their disposal to ensure late payment and non-payment does not go unpunished.

It is simply not acceptable for SMEs to continue losing out to customers - whether individuals, other SMEs, public authorities or big brands - because those customers just choose not to pay for goods or services they have received.

Put it in any other context, and it's tantamount to theft, yet put it in the context of an unpaid invoice and suddenly people are terrified of offending the late payer.

Unless we all wise up and start enforcing our invoices and penalising our bad customer debts, all the legislation in the world won't make the slightest bit of difference.

So to make prompt payment hold water, here's our list of the features of the ideal 'bucket' of legislation:

  • Clear upfront payment terms agreed in writing with all clients before supply begins;
  • Background credit checks on all clients and sensible credit limits based on these;
  • DO NOT WORK for clients deemed too high risk, or ask for payment upfront;
  • Prompt invoices issued immediately when work is completed;
  • Regular communication to ensure the invoice is received and is being processed;
  • Reminders on or near the deadline day so the client cannot plead ignorance later;
  • DO NOT WORK for clients who have an overdue invoice on their account;
  • Prioritise chasing overdue invoices for full settlement as soon as possible;
  • Enforce statutory interest, penalties and recovery fees in accordance with your payment terms;
  • On any sizeable invoice, be prepared to pursue the debtor in court if necessary;

You would not apply for a job with an employer known for not paying their staff wages on time; why would you work for a client known for doing the same?

Prompt payment is essential for healthy small-business cash flow, it keeps money flowing which is good for the economy, and it cuts down on burdensome admin checking on who has paid what, and what's overdue today.

Most of all, the sooner we all get involved in prompt payment culture, the sooner we will be able to tell which are the truly healthy businesses out there - and which need to kick the bucket.

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