UK Prompt Payment Code FAQ

The UK payment practices and performance reporting regulations 2017 are a set of rules that regulate the payment practices and performance reporting of businesses operating in the United Kingdom. These regulations aim to improve the transparency and fairness of payment practices in the UK, and ensure that businesses are held accountable for their payment practices and performance.

The Payments Practice and Performance Reporting Regulations were brought in under Section 3 of the Small Business, Enterprise and Employment Act 2015 (and, for limited liability partnerships (LLPs), Section 15 of the Limited Liability Partnerships Act 2000) making it a legal obligation for large companies to report on their payment practices with suppliers. The reporting obligation is on a half-yearly basis.

The payment practices government guide outlines the scope being companies that satisfy two out of the following criteria:

• £36 million annual turnover
• £18 million balance sheet total
• 250 employees

The list of companies in scope has not, to date, been published by UK Government. However on TISCreport we have identified all those who can be determined via access to available open data.  You can see this data in action for FTSE100 companies on our public demo FTSE 100 Transparency Dashboard.

Yes, there are a number of legal requirements that businesses must follow in relation to payment practices and performance reporting. For example, the UK government has introduced legislation that requires large companies to report on their payment practices, policies, and performance twice a year. Companies must also publish information on their website about their payment terms and policies. 

Companies that do not adhere to the Prompt Payment Code or other payment practice regulations may face consequences such as negative publicity, damage to their reputation, and a loss of trust from their suppliers. In severe cases, non-compliance may also result in legal action.

You can find out more about the Prompt Payment Code and payment practice regulations by visiting the CICM website or contacting them directly. You can also visit the UK government's website for information on payment practice regulations and reporting requirements.

The Prompt Payment Code is a voluntary code of conduct for businesses in the UK that aims to promote fair payment practices and ensure that suppliers are paid on time. The code is administered by the Chartered Institute of Credit Management (CICM).

Companies that sign up to the code agree to pay their suppliers within agreed terms and to provide clear information on payment practices. They also commit to resolving disputes quickly and fairly. The CICM monitors compliance with the code and publishes regular reports on the performance of signatories.

The key provisions of the regulations include: 

• Requiring businesses to publish information about their payment practices and performance on a regular basis
• Establishing a duty for businesses to report on their payment practices and performance to the government
• Providing for the creation of a government-run payment practices and performance reporting database, which will allow businesses to compare their practices and performance to their peers
• Requiring businesses to have written contracts with their suppliers that clearly set out their payment terms and conditions
• Providing for the creation of a complaints and appeals process for suppliers who feel they have been unfairly treated by businesses with regard to payment practices and performance

Businesses are required to report on their payment practices and performance at least once per year. The first report was due by April 30, 2018.

Businesses are required to report on a range of payment practices and performance indicators, including:

The average number of days taken to pay invoices

The percentage of invoices paid within 30 days

The percentage of invoices paid within 60 days

The percentage of invoices paid within 120 days

The percentage of invoices disputed

The percentage of invoices paid late

Any changes to payment terms and conditions

Any instances of supply chain financing or factoring

Any instances of the business requiring suppliers to bear the cost of goods or services before payment is made

If a business fails to report on their payment practices and performance as required, they may be subject to fines and penalties. In addition, the government may choose to publish the fact that a business has failed to report, which could damage the business's reputation.

Using Payment Practices Reporting (PPR) data as part of your due diligence can provide valuable insights into the financial health and stability of a business. Here are a few reasons why it can be beneficial: 

1. Assessment of payment behaviour: PPR data allows you to evaluate a company's payment behaviour and track its historical payment performance. It provides information on whether the company pays its suppliers on time or faces frequent delays in settling invoices. This can help you assess the company's financial discipline and reliability as a business partner.
2. Risk identification: By analysing PPR data, you can identify potential financial risks associated with a company. If a business consistently pays its invoices late or exhibits a pattern of late payments, it could indicate cash flow issues or financial instability. This information can be critical in determining the level of risk you are willing to undertake in your business dealings.
3. Supplier relationships: PPR data can offer insights into a company's relationships with its suppliers. If a company maintains a good payment track record, it suggests that it values its supplier relationships and is committed to maintaining healthy business partnerships. On the other hand, a company with a history of late payments or payment disputes may indicate strained relationships or operational inefficiencies.
4. Benchmarking and industry analysis: PPR data can be used to compare a company's payment practices against industry benchmarks. This analysis can help you understand how a company's payment behaviour aligns with industry standards. It can also provide a basis for negotiation and determining fair payment terms, allowing you to make informed decisions during business transactions.
5. Financial forecasting: By examining payment patterns through PPR data, you can gain insights into a company's financial performance and liquidity. This information can be valuable when forecasting cash flows, assessing creditworthiness, or evaluating investment opportunities

PPR data can provide useful information to provide context when considered with other due diligence practices, such as financial statements, credit reports, and legal documentation. Combining multiple sources of information will help you form a comprehensive understanding of a company's financial position, their payment practices and their ethics.

The prompt payment code signatories and Payment Practice Reporting Regulations compliance datasets form part of the Decent Work (UN SDG 8) ESG bundle. The impact of late payments increases exponentially down through supply tiers, leaving the most vulnerable suppliers and workers at the ends of those supply chains at greatest risk of exploitation. Subscribing to this bundle will enable your organisation to influence better supplier behaviour on prompt payment whilst reducing your own supply chain risks.

By subscribing to the Decent Work data bundle you will be able to filter suppliers on your dashboard by the following as reported by those companies:

• prompt payment code signatory (PPC)
• in or out of scope for Payment Practices & Performance Regulations Reporting (PPPR)
• in or not in compliance with PPPR
• links to PPPR reports where they exist
• numbers of suppliers reported being paid within 30, 60, 90+ days
• supplier payment terms and proportion not paid within them
• shortest, longest standard payment periods
• payment term changes
• average time to pay in days

In October 2010 the government announced a new scheme to name employers who break minimum wage law. The naming scheme came into effect on 1 January 2011.

The objective of the naming scheme was to raise awareness of minimum wage enforcement and deter employers who would otherwise be tempted to break minimum wage law. Following issue of an Notice of Underpayment (NoU), employers have 28 days to pay all arrears to workers and the full penalty (or 14 days if they wish to take advantage of a 50% reduction in the penalty charge). HMRC refers details to BEIS, and BEIS considers whether to name the employer once all arrears have been paid to workers and the appropriate penalty has been paid.

If an employer appeals the NoU, they will not be referred to BEIS to consider Naming until the appeal is decided and is unsuccessful (if that is the case) and the appropriate penalty has been paid Naming will proceed if the employers does not appeal but fails to pay the arrears and/or penalty. 

The naming scheme was revised in October 2013, and then paused in July 2018, to take account of Ministerial concerns and recommendations made by the previous Director of Labour Market Enforcement. Naming recommenced in December 2020, on a revised basis. Specifically, the government undertook to:

• increase the arrears threshold over which employers will be considered from naming from over £100 to £500 or more (with these exceptions)
• provide more information about reasons for breaches
• publish an educational bulletin for employers, highlighting common reasons for underpayment
• name employers more frequently than previously

The government is clear that the naming scheme is not an alternative to prosecution. However, if no appeal has been made and the NoU remains unpaid for 28 days, then the government will consider naming. 

Full information can be found here:

https://www.gov.uk/government/publications/enforcing-national-minimum-wage-law/national-minimum-wage-policy-on-enforcement-prosecutions-and-naming-employers-who-break-national-minimum-wage-law

Naming scheme data can be found online under an Open Government Licence. However TISCreport also makes this data available as a data subscription service via dashboard for members to add to their memberships. 

A Prompt Payment Score is calculated from available supplier data aggregated from consenting suppliers providing anonymised access to their collections reports. Currently TISCreport has integrations with Quickbooks, Sage and Xero which enable suppliers to make this data available. Once accessed, the following methodology is applied:

1. Payment Categories: TISCreport categorises payment periods into different groups, including "On Time" (paid within the agreed terms), "Delayed" (paid after the agreed terms), and "Significantly Delayed" (paid well beyond the agreed terms). 2. Payment Data Collection: TISCreport collects historical payment data from suppliers, including the dates on which they made payments to their own suppliers. This data is securely stored and analysed to generate payment insights. 3. Weighting Factors: TISCreport applies weighting factors to different payment categories based on their severity and impact on suppliers. For example, higher weights are assigned to "Significantly Delayed" payments compared to "Delayed" payments, ensuring a fair assessment. There are other weighting factors in relation to supplier vulnerability, e.g. size, ethnicity of organisation and sector. 4. Payment Scoring: TISCreport calculates a payment score for each supplier based on their payment behaviour. The frequency and severity of late payments are considered, incorporating the determined weighting factors. A numerical scale, such as 1-10, is used to provide a comprehensive view of supplier payment performance. 5. Periodic Review: TISCreport regularly reviews and updates the payment scores to ensure accuracy and reflect the most recent payment behaviour of suppliers. This process occurs quarterly, semi-annually, or annually, depending on the agreed timeline. 6. Utilising Payment Scores: TISCreport's users can leverage the payment scores to make informed decisions regarding suppliers. Buyers can reward suppliers with higher scores for their prompt payment behaviour, gaining advantages such as preferred contracts, extended credit terms, or other benefits. Suppliers with lower scores may prompt Buyers to conduct further due diligence or engage in discussions to address payment issues. By implementing this prompt payment scoring method, TISCreport enhances transparency and promotes a culture of prompt payment within the supply chain, fostering healthier business relationships and driving sustainable practices. If your organisation would like to drive prompt payment practices through your supply chains please get in touch to set up a programme. Please note that the specifics of TISCreport's implementation may vary depending on membership level, and these details can be tailored based on buyer requirements.