What it Means for Your Business
Late payments have long been a thorn in the side of businesses, straining cash flow and damaging supplier relationships. The Prompt Payment Code aimed to address this challenge by encouraging timely payments. However, as businesses evolve, so must the frameworks that govern them. Enter the new Fair Payment Code, which was launched on the 3rd December 2024 to replace the Prompt Payment Code.
The Fair Payment Code builds upon its predecessor with a renewed focus on incentivising fair payment practices. This guide provides an overview of the new framework, the changes it introduces, and the benefits it offers to businesses. Whether you’re in construction, retail, or manufacturing, this article will help you understand what the Fair Payment Code means for your organisation.
Background on the Prompt Payment Code
The Prompt Payment Code (PPC) was introduced to address one of the most persistent challenges for businesses: late payments. This voluntary code of practice originally required signatories to commit to paying at least 95% of invoices to all suppliers within 60 days for smoother cash flows. It was reviewed in 2021, and a requirement for signatories to commit to paying small suppliers within 30 days was added to the 60-day overall target.
While the PPC was a step in the right direction, its lack of enforceability limited its effectiveness. Many businesses struggled to pay 95% of invoices within the required 30- and 60-day limits despite being signatories to the code, and many suppliers complained of being paid outside these limits despite supplying PPC signatories. As industries evolved and economic pressures mounted, it became clear that a more robust framework was needed to drive lasting change in payment practices.
What is the Fair Payment Code?
The Fair Payment Code is more than just an update to the PPC. It’s a necessary evolution in addressing the persistent issues of overdue invoices and extended payment terms that the PPC struggled to solve.
The Fair Payment Code incentivises quicker and more timely payments through a tiered reward system. Businesses can now earn bronze, silver, or gold status, which recognises their commitment to fair payment practices. This approach not only rewards good behaviour but also creates a competitive edge for organisations that prioritise supplier relationships. It also introduces the requirement for applicants to provide evidence of their payment practices, allows for compliance checks, and adds in the commitment to behave fairly to suppliers by providing clear and understandable terms in contracts and avoiding disputes. It also grants gold, silver and bronze awards for two years, after which firms wishing to remain on the Code will have to reapply.
Additionally, the Fair Payment Code reflects the growing emphasis on accountability within central government contracts, where stricter payment criteria are being enforced. By aligning with these principles, the new code positions itself as a key driver of fairer, more reliable payment practices across all sectors.
Key Changes and How They Affect Businesses
The Fair Payment Code introduces several significant changes aimed at creating a more transparent and equitable payment landscape. For businesses, particularly finance teams, these changes will require adjustments to current processes to meet the new standards.
Reward Tiers: Bronze, Silver, and Gold
One of the standout features of the new framework is its tiered reward system. Businesses earn recognition based on their payment practices, with gold status reserved for those demonstrating the highest levels of compliance. This system not only incentivises better practices but also enhances the reputation of organisations committed to fair payments. For organisations already adhering to the Prompt Payment Code (PPC), transitioning to the Fair Payment Code should be straightforward, as existing PPC standards align with silver-level criteria.
However, it also gives a clear signal of intent on the part of the Government: businesses will be expected to work towards payment of at least 95% of all invoices within 30 days, even if they don’t reach that standard currently.
Alignment with Government Expectations
For private businesses working on government contracts, adopting the Fair Payment Code ensures alignment with the expectations for payment practices, enhancing credibility and demonstrating a commitment to ethical standards.
Review Existing Finance Practices
The Fair Payment Code’s framework encourages businesses to improve their invoicing and payment systems and will have a direct impact on how businesses handle invoicing and supplier payments. As a result, these changes may prompt many to review their current practices and adopt more efficient, digitised processes to stay compliant.
Benefits of the Fair Payment Code
The Fair Payment Code is more than just a compliance framework – it’s a tool for creating stronger, more resilient businesses and supply chains. By adopting its principles, organisations can unlock several key benefits:
Improved Cash Flow
Timely payments ensure that suppliers have the resources they need to maintain operations without disruptions. For businesses, this means a more stable supply chain with fewer risks of delays or financial strain affecting key partners.
Strengthened Supplier Relationships
Paying suppliers quickly and on time demonstrates respect and reliability, fostering trust and loyalty. This can lead to preferential terms, stronger collaboration, and long-term partnerships that benefit both parties.
Enhanced Reputation
Achieving a gold, silver, or bronze status under the Fair Payment Code highlights a business’s commitment to ethical practices. This recognition can enhance brand reputation, attract new clients, and solidify trust among stakeholders.
Competitive Advantage
In industries like construction and retail, where supplier relationships are critical, aligning with the Fair Payment Code can set businesses apart. Compliance with the code signals that an organisation is forward-thinking and prioritises mutual success.
These benefits make the Fair Payment Code not just an ethical choice but also a strategic one for businesses across all sectors. “Fair payment practices are essential for building trust and stability across supply chains. The Fair Payment Code ensures businesses of all sizes can thrive together,” says Liz Barclay, UK Government Small Business Commissioner.
The Fair Payment Code for Your Industry
The Fair Payment Code is designed to be universally applicable, but its impact will be particularly significant in certain industries. Sectors like construction, retail, and manufacturing often face complex supply chains and high reliance on smaller suppliers, making timely payments a cornerstone of operational success.
Late payments can disrupt entire supply chains, adopting the Fair Payment code can mitigate risks and ensure smoother project timelines.
Adhering to the Fair Payment Code ensures smooth supply chains for manufacturers, minimises downtime, and strengthens partnerships.
Retailers depend on a steady supply chain of goods. Fair Payment practices strengthen relationships with suppliers, ensuring stock availability.
Open ECX’s Fair Payment Software
Meeting the Fair Payment Code standards requires efficient systems and business processes to ensure suppliers are consistently paid on time. Open ECX provides financial process automation software that optimises AP processes, speeding up processing times, improving accuracy, and enhancing relationships across the supply chain network.
Open ECX Invoicing eliminates the challenges associated with the manual processing of incoming invoices and the use of legacy technology, optimising the entire invoicing process and helping businesses process payments on time, supporting businesses in their commitment to the Fair Payment Code.
Open ECX Statement Reconciliation revolutionises the process of reconciling incoming invoices to supplier statements, reducing errors and delays.
By automating these processes, Open ECX empowers organisations to easily comply with the Fair Payment Code, positioning themselves as leaders in fair and ethical payment practices.