New Payment Rules for Public Sector Suppliers: Why Prompt Payment is now essential for a strong social value offer.
By Sarah Stone Samtaler Social Value Consultant
The new Government is doing everything it can to kickstart the economy; but whilst the headlines might be focusing on investment and economic growth, the Government has another key priority which many companies have missed: prompt payment.
Why is Prompt Payment a Social Value Priority?
Social Value is about maximising the positive and minimising the negative impacts of your business activities; and slow payment of invoices, has a significant negative impact on the economy.
Prompt payment is vital for economic growth as it ensures healthy cash flow but according to The Federation of Small Business (FSB), around 52% of small and medium sized enterprises (SMEs) have suffered detriment from late payments quarterly, affecting approximately 2.8 million small firms and leading to 50,000 business closures annually. Furthermore, in 2023, the Small Business Commissioner reported that 15% of SMEs cited cash flow and late payments as an obstacle to running their businesses.
Prompt Payment is a key issue for the new UK Government.
Payment terms were a key pledge in Labour’s 2024 manifesto, and since coming into power they have wasted no time in acting. In September 2024, the Business Secretary, Jonathan Reynolds, announced a package of measures to tackle late payments which included a New Fair Payment Code and a raft of other measures including new rules on company reporting.
Prompt Payment: Key changes at a glance
Graphic showing how the new Government are prioritising prompt payment. © Samtaler 2025
In December 2024, on the same day that the new Fair Payment Code came into force the Cabinet Office released a Policy Procurement Note (PPN018) which instructed Central Government departments that from 1st October 2025, all government contracts above £5m per year will require suppliers to demonstrate they pay all invoices within an average of 45 days. Anybody who can’t commit to these terms won’t be allowed to bid for the contract.
This is serious stuff, but the vast majority of companies aren’t prepared So, what’s changing, and more importantly - what do you need to do to prepare?
Upcoming changes to payment regulations: From October 2025, stricter payment terms will apply to suppliers, including a 45-day average payment requirement and mandatory 30-day terms for public contracts. Non-compliance may impact eligibility for government contracts.
1. The Prompt Payment Code has been replaced by the Fair Payment Code
The new Fair Payment Code, which will be overseen by the Small Business Commissioner and the Department for Business and Trade, introduces a tiered award system to encourage prompt payments:
The Department for Business and Trade tiered award system to encourage prompt payments.
Companies need to apply for an award, which lasts for two years, with mandatory reapplication and a robust complaint system. This means that if you claim to be a Gold Award member but fail to pay your suppliers within 30 days, they can file a complaint against you.
2. The Government is stepping up enforcing of late payment performance reporting with new legislation requiring large businesses to include additional information on payment reporting in their annual reports from January 2025.
Legislation brought introduced in 2017 requires large companies to report every 6 months on their payment practices, policies and performance. These regulations were strengthened in October 2024. Previously, companies were only required to report the average number of days taken to make payments, as well as the percentage of payments made within 30 days, 60 days, or over 60 days.
Now companies will also be required to report:
The sum total of payments which were not made within agreed terms during the reporting period
The percentage of payments due within the reporting period which were not paid within the agreed payment period
The percentage of invoices that were not paid within agreed terms because of a dispute
3. This is just the beginning...
A consultation is planned for 2025 on additional measures which the government could introduce to address poor payment practices. Criminal prosecution is possible for non-compliant companies.
So, what can you do?
Five things Social Value Professionals should do to ensure their companies are ready for public sector’s new payment requirements.
Check your company’s current payment terms and if they are over 30 days, raise it as a priority for board level attention and get it on your CFO/Finance Director’s radar. It will be too late to address this when your bid teams are actively bidding for work and need to demonstrate compliance. Get ahead of it now - but to do that, you need buy-in.
Interrogate your figures and conduct an internal audit to determine your actual payment performance. Many large companies have signed the Prompt Payment Code and claim to have 30-day payment terms, but their payment processes and systems are so inefficient that they struggle to meet those terms. You will be judged on your performance, so it’s crucial to understand whether you have a problem. Additionally, you should review how your figures are calculated and reported."
Talk to your suppliers about their experiences and trial your company’s processes and systems yourself. Too often, people have never considered the point of view of a supplier trying to submit an invoice (and get paid!)What if your CFO spent an hour in a SME suppliers shoes? They’d quickly identify the issues and take action. Suppliers who interact with multiple companies’ systems are in a unique position to provide valuable feedback on what works and what doesn’t.
Talk to your third-party payment companies or internal payment subsidiaries to ensure they are fully aware of your payment requirements—and that they are accurately reporting to you. While there is very clear guidance on what needs to be reported, our experience working with large companies and their third-party payment providers suggests that the figures being reported often fail to reflect reality. With criminal prosecution being threatened for non-compliance, the stakes are high.
Take action Sign up for the new Fair Payment Code, and update your website and marketing materials to replace references to being a 'Prompt Payment Code signatory' with the new branding, showing that you’re taking action. The Fair Payment Code is a completely new initiative, not a reform of the old Prompt Payment Code, which has now been closed. Existing signatories to the Prompt Payment Code will not automatically transfer to the new Code and must submit a new application. It may seem obvious, but if your tender submissions or website still reference the Prompt Payment Code, it will raise red flags for procurers.
Image Source: Small Business Commissioner
Want some help? At Samtaler we specialise in helping companies ensure their social value offer meets public sector requirements. If would like some support to ensure your payment terms are fully compliant please get in touch with us via email at hello@samtaler.co.uk
Further Reading Links:
Crack down on late payments in major support package for small businesses - Gov.uk
New plans revealed to help small firms and improve access to cash - Gov.uk
PPN 018: How to take account of a supplier's approach to payment in the procurement of major contracts - Gov.uk
The New Fair Payment Code - Small Business Commissioner
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