UK Government Tackles Late Payments with New Fair Payment Code

The UK government has announced measures to address the persistent issue of late payments, which significantly impact small and medium-sized enterprises (SMEs). A new Fair Payment Code (FPC) has replaced the previous Prompt Payment Code (PPC), signalling a stronger stance against delayed payments.

Under the new FPC, businesses must demonstrate adherence to good payment practices to achieve official code status, ranging from bronze to gold. This initiative is part of a broader government package designed to support small businesses, improve cash flow, and stimulate economic activity. Consultation on new laws is expected in the coming months, with potential criminal prosecution for non-compliant company directors, including unlimited fines, for failure to report payment practices.

The FPC replaces the Prompt Payment Code, which was a voluntary agreement administered by the Office of the Small Business Commissioner. The original code, established in 2008 and strengthened in 2021, encouraged timely payments and provided dispute resolution guidance. Key requirements introduced in 2021 included paying 95% of invoices within 60 days and mandatory annual payment performance reporting.

Research indicates that late payments are a substantial burden, costing SMEs an average of £22,000 per year and contributing to lost productivity. The government aims for increased transparency, accountability, and protection for SMEs within supply chains, where payment issues tend to become more pronounced further down the chain.