Prompt Payment - A New Moral Code?

The Government’s Prompt Payment Code focuses on three main areas: a commitment to pay suppliers on time, give clear guidance to suppliers, and encourage good practice. Many large companies have signed, or have committed to sign up to it.

Unfortunately, according to the Federation of Small Businesses, other commercial giants, including Carlberg, TNT, DHL, Compass, Bernard Matthews, Jewson and Amazon have chosen to extend their payments terms – one company is keeping its suppliers waiting for as long as four months before paying invoices, and others are charging settlement fees as a discount if accounts are paid prior to the date specified by their extended terms – in order to hold onto cash, despite the impact this will have on the cash flow of small businesses, or the increased costs those businesses will incur in respect of bank charges, overdrafts, and handling fees.

Legislation giving suppliers the right to charge interest on late payment has failed to solve the 'big-customer-small-supplier' late payment problem. Small suppliers fear to use it because they fear that the defaulting customer will find another supplier; large customers regularly refuse to pay late payment charges when they are demanded, using the often unspoken but always potent threat that they will find another supplier. I think it unlikely that the non-compulsory Code will succeed where Legislation failed.

Philip King, the Director General of The Institute of Credit Management, recently wrote that the only real answer would be a new moral code – ‘a code that says late payment is not acceptable’ – and he is, of course, quite right. Unfortunately, I doubt that we will see universal adherence to such a code any time soon. Certainly many large companies are interested in promoting their ‘corporate social responsibility’ credentials – it gives them a competitive advantage – but ‘prompt payment’ doesn’t necessarily form part of every company's CSR thinking, or appear on every CSR statement.

You can learn more about the Prompt Payment Code by visiting the Prompt Payment Code website. There is a facility on the site to raise concerns about late payers.