Private sector payment terms win approval from contractors
The government’s decision to include 30 day payment terms into their Prompt Payment Code has been welcomed by small businesses, freelancers and contractors. The decision has been welcomed by those who are keen to ensure that small businesses are able to rely on these payment terms as standard in order to keep their businesses afloat.
Although the code is still a voluntary scheme, the fact that those signing up to it will be bound by terms which favour small businesses is encouraging. The terms will also be rigorously enforced by the newly formed body who will have the power to eject any companies who have committed to the code but which fail to comply.
The current code stipulates a 60 day payment term as a maximum and has 1,700 organisations signed up, but the change in payment terms comes alongside a government push for more businesses to join those already voluntarily abiding by the terms. Those who are already signed up to the PPC have been given warning that, except in cases where they can prove exceptional circumstances apply, they will be expected to get on board with the new, shorter payment terms or face being removed from the scheme.
The news comes alongside new laws which will be much more stringent about the requirements for businesses to report on their activities, in the form of the Small Business, Enterprise and Employment Bill. This will see the UK’s biggest businesses being forced to publish their payment terms in order to promote transparency and ensure that small businesses are aware of their terms before entering into any contracts with them.
The data that will be available to the enforcement body will allow them to review the policies of those who have signed up to the Prompt Payment Code which, in turn, will allow them to enforce the terms of the code and challenge any who fail to pay suppliers on time or have excessively long payment terms as standard.
The chief economist at the Institute of Directors is James Sproule, and he is also a member of the PPC advisory board. He has welcomed the move, saying that it is a sensible approach to the problem of late payments, and highlighting the fact that the public pressure on those who insist on unfavourable payment terms could be a more effective way to deal with them than any legislation. Because the scheme is voluntary, it gives businesses a chance to advertise their desire for fairness and distinguish themselves from competitors who might not have such consideration for their suppliers.
The Association of Independent Professionals and the Self Employed have also welcomed the news, but are keen to point out that compulsory compliance could benefit contractors, freelancers and small businesses more.
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