Government Launches New Fair Payment Code with “Olympic” Medals to Combat Late Payments

The UK Government has introduced a new Fair Payment Code to address late payments to subcontractors and suppliers, replacing the previous Prompt Payment Code. This initiative aims to promote faster payments within the construction and supply industries, with stricter regulations and more rigorous enforcement. The Fair Payment Code uses an “Olympic” medal ranking system to recognise businesses that prioritise prompt payments, encouraging timely transactions across the industry.

The Medal System for Fair Payment

The Fair Payment Code introduces a three-tier ranking system, awarding medals based on payment practices:

• Gold: For companies that pay 95% of suppliers within 30 days.
• Silver: For companies that pay 95% of small business suppliers within 30 days and all others within 60 days.
• Bronze: For companies that pay 95% of suppliers within 60 days.

With this transparent ranking system, the Government hopes to incentivise companies to adopt faster payment practices, especially to benefit smaller suppliers often impacted by cash flow issues due to late payments.

New Reporting Requirements for Large Businesses

The legislation will also require large companies to disclose their payment practices in their annual reports, providing visibility on how these businesses manage supplier payments. This transparency places added accountability on large firms, giving small businesses and subcontractors valuable insights into their potential partners’ payment habits.

The Importance of Prompt Payments in Construction

Late payments have long posed challenges in the construction industry, where cash flow is essential to keep projects on track and suppliers operational. For small businesses, delayed payments can strain resources and, in some cases, lead to financial instability. The Fair Payment Code encourages a fairer approach, helping ensure smaller suppliers receive payments in a timely manner and strengthening the overall supply chain.

Key Takeaways for Businesses

• Prompt Payment Recognition: The Fair Payment Code awards Gold, Silver, and Bronze medals to recognise companies’ commitment to timely payments.
• Transparency Requirements: Large businesses must now report on their payment practices, offering greater accountability.
• Supporting SMEs: The initiative promotes a healthier supply chain by ensuring small businesses are paid on time, reducing financial pressures.

This new Fair Payment Code represents a positive shift towards fairer payment practices in the UK, fostering a more transparent and sustainable financial environment within the construction and supply sectors.