Now, the PPC is not a UK government regulation, but standards for payment practices and best practice is administered by the Chartered Institute of Credit Management (CICM), the largest professional credit management organization in Europe. The basic standard promotes 30-day payment terms as the norm and includes a maximum 60-day payment term (defined as paying 95% of invoices within 60 days, unless there are exceptional circumstances). Compliance with the principles of the code is monitored and enforced by the Prompt Payment Code Compliance Board. The code covers prompt payment, as well as wider payment procedures.
A few things came to mind as I thought back on the PPC:
The fact is, large buyers are extending terms to preserve working capital across industries because, well, they can. The Hackett Group’s 2018 survey shows this nicely:
As part of maximizing days payable outstanding (DPO) to reduce working capital needs, many of these large companies have or will implement various early pay opportunities for their suppliers (bank-led supply chain finance, dynamic discounting, payable auction services, and card programs for the long-tail).
The UK government has been the only active government that is trying to address payment term extension, literally providing transparency into what has always been a private business-to-business contractual event. It certainly has popular support in this day and age of populism and resentment of big business (i.e., “Break up the techs”), and it appears some progress is being made. It certainly takes stamina and diligence to keep this going, and it appears for now, the UK government is willing to ensure signatories honor their pledge or kick them out.
Short of legislation, shame can be a tool. But when we think of the damage that large corporates have done far beyond late payment (i.e., Purdue Pharma & the opioid crisis, Lehmans & the Financial crisis, etc.) without paying any price, you have to wonder how effective shaming will be.
So maybe we just need to deal with it, and make sure early pay options are available to suppliers that can’t afford to wait 60, 75 or more days to get paid.
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