The Prompt Payment Code – time for the government to get tough

The Prompt Payment Code – time for the government to get tough

The BBC reports today the the Prompt Payment Code – a UK government backed initiative to encourage big business to pay on time – isn’t working.

In other news, the sun came up this morning and it is expected to get dark sometime tonight.

The Prompt Payment Code provides little more than gentle encouragement to business to demonstrate – in words at least – that they will pay according to terms. I wouldn’t criticize for one moment those businesses that have signed up to it. I know that they are sincere in their intentions. But the code doesn’t have teeth. It doesn’t name and shame transgressors. It doesn’t hold business to account if they pay little attention to actually delivering against the promise. And it’s hardly surprising therefore that it’s not working.

Purchasing Insight logoThe BBC’s report includes some intelligent commentary from Lord Digby Jones who believes the code is ineffective.

“I think the code certainly has not worked. It was a nice statement of intent.” he is quoted as saying.

“At the end of the day” he goes on, “have you heard of any big business being shamed into changing? Somewhere, someone is paying an additional cost because the company at the top is basically borrowing off the small business rather than borrowing off the bank,” he said.

The wise words from Lord Jones are in contrast to those from Philip King, of the Institute of Credit Management  – which operates the code – who insists it was having a positive effect.

“There is evidence that companies that are signatories pay better than companies that are not,” he said. “And there is also research which shows companies that are signatories have improved their performance over the past four years.”

Evidence that signatories to the code are better payers than companies who are not? Is that really the best he can say in support of the code? If Philip King really wants to show us that the code is effective, why not publish the actual payment performance of signatories so that we can all see exactly what “pay better” actually means.

The prompt payment code amounts to little more than an empty gesture and the government needs to take a tougher stance. Small businesses in the UK are paying through the nose for working capital to support perfectly sound businesses suffering from late payment by their customers and the government needs to step in and show that they mean business.

Pete Loughlin can be found on twitter @peteloughlin