Top Service News
Government announces reform to the Prompt Payment Code in support of small businesses
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This week (19 January) the government has announced ‘an overhaul of the Prompt Payment Code (PPC) to crack down on delayed invoices owed to small businesses. Under new reforms, companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days – half the time outlined in the current code.[1]
In a press release issued by Department for Business, Energy & Industrial Strategy (19 January) government states that ‘despite almost 3,000 companies having signed the code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. Currently, £23.4 billion worth of late invoices are owed to firms across Britain.’
The reform comes into effect immediately as the government seeks to ‘strengthen the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller partners on time.’
“The latest reform to the PPC is welcome as it recognises the struggles companies face when it comes to late payment, particularly for the construction industry. As a company, we are proud to be an approved signatory of the Prompt Payment Code. For thirty years we have been supporting the construction industry with the tools and information to increase their protection from bad debt as well as developing services to assist with the collection of overdue invoices. Construction companies’ write-off thousands of pounds because of bad debt caused by late and non-payment each year. The knock-on effect from the top of the chain to the bottom can be devastating,” says Emma Miller, Company Director Top Service.
The changes coming into effect immediately as outlined in Press release Government tackles late payments to small firms to protect jobs are:
- requiring a company’s CEO or Finance Director, or the business owner where it is a small business, to personally sign the Code to ensure responsibility for payment practices is taken at the highest level of an organisation
- introducing a new logo for signatories to use in external communications to show their commitment to the Code, making it more damaging to a company’s reputation to breach it
- acknowledgement as a condition of signing the Code that suppliers can charge interest on late invoices
- enabling administrators of the Code to investigate breaches based on third-party information
In addition, the new requirement for signatories to pay 95% of invoices from small businesses (those with less than 50 employees) within 30 days will be effective from 1 July 2021. The target for larger businesses will remain 95% of invoices within 60 days.
What is the Prompt Payment Code (PPC)?
The Prompt Payment Code (PPC) is administered by the Chartered Institute of Credit Management 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. The Code covers prompt payment, as well as wider payment procedures.
Top Service Member Benefits
All signatories of the Prompt Payment Code (PPC) are eligible for a 25% discount on Top Service Ltd subscription fee.
Are you claiming everything you are entitled to for bad debts?
Where an invoice is not paid or is paid late, the Late Payment of Commercial Debts (Interest) Act 1998 allows you to claim interest and compensation and the Late Payment of Commercial Debts Regulations 2013 allows you to claim recovery charges above the compensation amount awarded. ”
“Interest claims for non-payment are split into two categories, contractual and statutory. Contractual interest must be stated in the terms & conditions and / or contract and agreed with the customer before the product / service is provided.
The majority of construction businesses who are providing trade credit to customers will turn to the statutory interest legislation to ensure they are being compensated for late payment.
The statutory legislation (Late Payment of Commercial Debts (Interest) Act 1998) allows for interest to be claimed at 8% above base rate and also a compensation claim of either £40, £70 or £100.00 depending on the value of the debt.
| Amount of debt | What you can charge |
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
The statutory legislation can be applied to business debts that are ‘late’ the Government outlines ‘late’ as being 30 days after either the customer receives the invoice, or you deliver the goods/provide the service (if this is later than the customer receiving the invoice). Unless you have agreed longer terms to pay with your customer. In these cases, the debt would be ‘late’ after those agreed terms have passed.
In terms of raising invoices for these late payment charges, there is no need. You claim your interest and compensation on the gross amount of the invoice. Your customer should treat the payment of interest to you as they would bank charges. There is no need to raise a separate invoice for these charges.
To enable your customer to process payments for interest and to ensure you are covering any required pre-action protocol should the need for legal action be necessary it is advisable to confirm you claim for interest within your chasing letters. If you are passing your case to a 3rd party for recovery, then your nominated 3rd party should do this for you.
Can you pass the debt collection cost onto your customer?
Any claims for your debt collection costs not claimed under the statutory legislation should be agreed within your terms & conditions and / or contract with your customer. Under the Late Payment of Commercial Debts (Interest) Act 1998 you can claim a compensation figure, depending on the value of the debt you are collecting:
| Amount of debt | What you can charge |
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
If your collections costs are more than the compensation figure you are claiming, you can claim the surplus under the late Payment of Commercial Debts regulations 2013.
To help improve your chances of a successful collection for interest and / or charges and to meet any pre-action protocol required for legal action you should ensure any claims for interest, compensation and charges are ‘reasonable”.
For more information on debt prevention and recovery please contact our expert team helpdesk@top-service.co.uk
1.https://www.gov.uk/government/news/government-tackles-late-payments-to-small-firms-to-protect-jobs