Launching the Fair Payment Code: helping businesses get paid on time

The Office of the Small Business Commissioner (OSBC) is an independent public body set up by the government to tackle late payment and unfavourable payment practices. The OSBC recently launched the Fair Payment Code (FPC) to crack down on late payments between businesses.

The FPC is now open for applications and has replaced the previous Prompt Payment Code (PPC).

How to qualify for the code

Businesses can qualify for a gold, silver or bronze award depending on how quickly you pay supplier invoices.

An award lasts for 2 years and you must reapply to continue on the code. This allows the OSBC to check evidence and compliance every 2 years.

If you are not ready to apply for an award, the OSBC can help you get started. We'll also help award businesses on the code to reach a higher award. The FPC is about continually improving payment performance and culture in the UK and we'll support businesses to achieve that.

Expected behaviours

When applying to receive a Fair Payment Code, there's a set of expected behaviours which you must commit to:

• contracts should be clear and understandable
• everyone should know the payment terms and when money will arrive
• payment disputes should be avoided and resolved quickly if they do arise

Reasons to pay quicker

1. Overdue payments are only a part of the problem with payment culture in the UK. Extended payment terms in contracts are problematic too. Bigger businesses must understand why smaller suppliers need to be paid quicker and why it's to their own advantage too.
   
2. If your suppliers go bust because you haven't paid by the due date or have pressured them to accept payment 60/90/120 days after delivery of products or services, you'll have the expense, delay and uncertainty of finding a replacement.
   
3. Investors, prospective customers and suppliers may become suspicious that you're in financial difficulty and trying to conserve cash if you delay payments.
   
4. Nurture your suppliers. Get your FPC award and use the logo to let suppliers know you're a 'good payer'.
   
5. Every part of your supply chain will be more resilient.
   
6. Investors and talented employees may be more likely to work with you.

Fair payment

The definition of fair can sometimes be disputed, but people generally know what's fair, and can choose to act fairly.

It's not fair to:

• push a supplier to wait 90/120 days to get paid after delivery - smaller firms may not be able to manage their cashflow if they have to wait longer
• break the promises you make in a contract
• use your suppliers to bankroll your own business
• tell a supplier that they'll be paid in 30 days when the company's processes mean it will take much longer
• negotiate payment terms and then pay later than the agreed date
• dispute invoices on purpose or quibble over minor errors or delay issuing a PO number so that you can delay paying

Healthy cash flow is critical for small business survival and growth. Late and long payment times disrupt the cash flow cycle and can prevent a business from paying its bills, eventually leading to business failure.

The FPC aims to drive better payment practices for the good of supply chains, wider society and the entire economy.

How to apply