Prompt Payment Code adopted by Carillion “toothless”

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Small business chiefs at the FSB have attacked the Prompt Payment Code (PPC) as “toothless” in the wake of Carillion’s £2 billion collapse.

Carillion’s collapse has called into question the effectiveness of the Prompt Payment Code (PPC) and raised the need for urgent reform to successfully tackle the UK’s late payment epidemic.

Despite being a signatory of the PPC since 2013, Carillion were notorious for being late payers. Last July, FSB exposed these poor practices when it came to light that some members were being made to wait 120 days to be paid.

Poor payment practice continues to be a big issue for small businesses with FSB research showing that, on average, 30 per cent of payments are typically late while the average value of each late payment stands at £6,142. Furthermore, it costs the UK economy £2.5bn each year and kills 50,000 small firms.

FSB is calling on Government to mandate that all FTSE 350 companies sign up to a strengthened Prompt Payment Code with a new “three strikes and you’re out” rule, which specifically targets repeat offenders of late payment. The worst offending companies should be struck off and stripped of the right to be awarded public sector contracts until their practices have improved.

Mike Cherry, National Chairman at the Federation of Small Businesses, said: “Sadly this sorry saga has laid bare the frailties of the Prompt Payment Code.  While it is fundamentally a good idea, it does not work when it is most needed – as shown with Carillion’s behaviour since July 2017.

“Although they were signatories of the PPC, Carillion were able to use their dominant position to squeeze smaller firms to mask their own financial failings. This irresponsible behaviour has put many small businesses in jeopardy, with countless people fearing for their jobs.

“Government must step in immediately to strengthen the PPC by making it mandatory for all FTSE 350 businesses and introducing a tough penalty regime for those companies flaunting the rules. Companies taking advantage of small businesses for their own gains should have no right to public sector contracts.

“The Small Business Commissioner needs to be given responsibility to toughen up the Prompt Payment Code.  Parliament is today announcing it will scrutinise these issues in a cross-party way, which we hope helps Government chart a new way forward to tackle poor payments.”