New SME payment rules under the Prompt Payment Code have come into effect from the start of this month, meaning that larger firms that committed to it are required to pay inside of 30 days.
Late payments are a big problem for small businesses, causing many to go to the wall. The Prompt Payment Code is an attempt to address this problem, and it reduces the amount of time that larger companies have to pay outstanding invoices, from 60 days to 30.
The government announced the change at the beginning of 2021, after a four-month consultation process overseen by the Small Business Commissioner. It aims to help businesses that have fewer than 50 employees to avoid cash flow problems. The previous 60-day rule still applies for companies with more employees than that.
Professor Noble Francis, the Economics Director for the Construction Products Association, told Construction News that:
“Late payment is a constant issue for subcontractors, particularly the smallest firms, for whom cash flow is critical and especially in construction, given that 86% of employment is in SMEs.”
Talking to an accountant for subcontractors in Goole or wherever they live could also help people facing cash flow problems.
Those larger firms that signed up to it and fail to abide by the new rules face suspension, and they could also be banned from putting in bids for contracts above £5 million in value.
Francis pointed out that such companies have found ways around penalties in the past though, and he warned that these changes may not prevent that.