Prompt Payment Policy – are you ready?

Every year, thousands of businesses experience severe administrative and financial burdens, simply because they are not paid on time. Late payment is a key issue for business, especially smaller businesses as it can adversely affect their cash flow and jeopardise their ability to trade. In the worst cases, late payment can lead to insolvency.

This is why Oliver Dowden, Minister for Implementation for the Cabinet Office, announced a new prompt payment policy in November 2018 to ensure that all Government suppliers and sub-contractors benefit from being paid on time. Failure of companies to demonstrate prompt payment to their suppliers could result in them being prevented from winning Government contracts.

Bidders for Government contracts will be required to provide evidence about their payment performance, including the percentage of invoices paid within 60 days across both their private and public sector business. Suppliers who are unable to demonstrate that they have effective systems in place that ensure a fair and responsible approach to payment of their supply chain may be excluded from bidding.

This policy will be implemented from September 2019 in Government contracts with expected revenues above £5m per annum. As part of the assessment the MOD will be looking back at payment performance for the previous two 6 month reporting periods. Suppliers’ current payment performance will therefore be considered – and may impact their ability to win business.

Larger companies are already required to publish payment performance in accordance with the Reporting on Payment Practices and Performance Regulations (2017): further information is available at this link https://www.gov.uk/government/publications/business-payment-practices-and-performance-reporting-requirements. These reports will be used to verify any response provided as part of the selection process from this Autumn.

Suppliers are advised to:

  • review their published data via BEIS – https://check-payment-practices.service.gov.uk/
  • ensure they are meeting the required standards (95% of payments within 60 days)
  • take any steps to improve performance if required

This does not preclude the MOD’s standard contract condition (DEFCON 534) requiring suppliers to pay undisputed invoices within 30 days, which will take precedence.  This condition also seeks to ensure prompt payment throughout the supply chain by requiring an equivalent condition to ensure that subcontractors also pay within 30 days.

Further information can be found below.

Outcome of consultation

https://www.gov.uk/government/consultations/prompt-payment-by-government-suppliers

Press Release

https://www.gov.uk/government/news/crack-down-on-suppliers-who-dont-pay-on-time