Fair Payment Code
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All’s Not Fair

We’re nearly ready to launch the new Fair Payment Code (FPC). The excitement is mounting, guidance is being written and the application forms are hot off the press. The FPC replaces the Prompt Payment Code and aims to drive improvements in business to business payment practices in the private sector. PPC signatories will be told soon how to apply to the new Code and there will be a three month period to move over from the old to the new.

Apply for:

  • Gold – if you are paying at least 95% of all your invoices within 30 days
  • Silver – if you are paying at least 95% of all invoices within 60 days, and at least 95% of invoices to small businesses (with fewer than 50 employees) within 30 days
  • Or Bronze – if you are paying at least 95% of all your invoices within 60 days.

60 days is a long time but it’s much better than a lot of current payment practice. Longer than 60 is a no-no, but we need to get as many firms into the system as possible and then drive them up the scale. We will be pushing you.

Every applicant to the Code must also commit to the code’s principles of being Clear, Fair and Collaborative with their suppliers. More detail soon.

In the meantime, I’m being asked ‘what’s fair’?‘

Fair’ can be interpreted, disputed, debated. People instinctively know what’s fair and what isn’t. If it doesn’t seem like a fair way to treat other people (and behind every business is a person with a family and a mortgage or rent to pay and other people to care for) then it almost certainly isn’t fair. You make decisions every day on what’s fair and what isn’t. Just don’t leave that moral compass outside the door when you come to work. Your choice is to act fairly or not.

Here’s a few of my thoughts. It’s not fair to contract for goods or services and not pay for them quickly. 30 days feels about the maximum in most cases, but many firms of all sizes choose to pay sooner because that’s fairer. 60 should surely be tops on anyone’s fairness barometer, even in some more complex sectors like construction and manufacturing. How is it fair to expect smaller suppliers with few reserves and little chance of finding the funding to tide them over, to manage their cashflow for that long? It’s not fair to write a contract that says we’ll take delivery of the goods or services and then make you wait for 90/120 days to get paid. What would your employees say if you made them wait 3 or 4 months to get paid?

You could claim it’s fair to pay in 120 days because the supplier agreed to that, but as the bigger customer with the deeper pockets, it’s not fair to use your power to push the smaller supplier into accepting those longer payment terms. Just yesterday I asked: ‘why do bigger firms think extending their payments terms to 120 days is fair’ and the immediate response from a very senior official was: ‘Because they’re bxxxxxxx.’ It’s not fair to use your suppliers to bankroll your business ambitions or make your books look good. It’s not fair that your procurement department should tell a supplier that they’ll be paid in 30 days when the company has long, convoluted approvals processes, or a single payment run each month, that means the supplier won’t get paid for 90 days. 30 must mean 30 days from the day the invoice is submitted to the customer, or the contractual negotiations have misled the supplier. And it most certainly isn’t fair to dispute invoices on purpose, or to quibble over minor errors, just so that you can delay paying them.

We want fair treatment of suppliers. We would love small suppliers to walk away from firms that pay badly but we know they’re too scared of losing the work to do that, so we want the Code to drive better payment practices for the benefit of supply chains, wider society and the entire economy.

I think that fairly reflects my thoughts. We see some brilliant payment practices and many firms spending squillions on improving their processes. We want them getting Gold. If you’re not there yet go for Silver and move on up next time. Or, if you have the right intentions but are struggling, get on the payment improvement ladder with Bronze and we’ll push you.

Once launched, businesses can apply for any Award level of the new Fair Payment Code via the OSBC website.