The Merry Month : Robert Merry
Robert Merry is an independent stone consultant and project manager who ran his own stone company for 17 years. He also acts as an expert witness. Here he contemplates the past month in the stone industry.
In case you missed it, the Government’s Small Business, Enterprise & Employment Act 2015 had a small birthday in April. Well not quite a birthday, but an enactment.
From 6 April this year, under section 3 of the said Act, it became a statutory duty for large companies to report on their payment practices. Hurrah! I hear you cheer. But what does that really mean?
In 2008 the government launched the Prompt Payment Code. This was a response to the increasingly frustrated calls from small business to do something about the ever-lengthening contract payment terms offered by big businesses to their supply chains.
Even as recently as 2013 in the construction sector, Carillion was piloting an Early Payment Facility. Contracts included 120-day payment terms. If you wanted to be paid within 30 days, you had to pay Carillion a fee for the privilege. Other contractors decided this was a good wheeze and started to develop their own Early Payment Schemes. Thankfully, this practice seems to have died a natural death.
The Prompt Payment Code is voluntary and I am pleased to report that Carillion is now signed up to it, along with 1954 others at the last count. Some 300 are from construction. The code has signatories from a wide range of industries, including construction, retail, transport, engineering, hospitality and logistics.
Signatories undertake to pay suppliers within a maximum of 60 days with an aim of reducing this to 30. Happy days!
They also undertake to:
1. Pay suppliers on time
- within the terms agreed at the outset of the contract
- without attempting to change payment terms retrospectively
- without changing practice on length of payment for smaller companies on unreasonable grounds.
2. Give Clear Guidance to suppliers
- providing suppliers with clear and easily accessible guidance on payment procedures
- ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
- advising them promptly if there is any reason why an invoice will not be paid to the agreed terms
3. Encourage Good Practice
- by requesting that lead suppliers encourage adoption of the code throughout their own supply chains.
Large companies will now have to publish payment practices and policies and details of their payment performance, stating how many invoices they paid within 1-30 days, within 31-60 days and after 61 days.
And they will also have to publish standard payment terms, comment on any disputes relating to invoices and make a statement as to whether the payment practices and policies provide for a deduction of a sum from the qualifying contract.
These reports will have to be filed with the Compliance Board, which comprises a cross section of business leaders, including one from construction. The Board now has the power to challenge any code signatory on its payment practices and policies.
However, this reporting is only enforceable for ‘large’ companies. There is no definition of a large company in the Act, so the Companies Act 2006 definition of a large company will probably apply:
- Annual turnover exceeding £36million.
- A balance sheet exceeding £18million.
- Average number of employees exceeding 250.
There are financial penalties for companies failing to publish a report and for false reporting. But the size of the fines and for which misdemeanor, the Compliance Board does not yet reveal.
Is this a good thing? Will it give small business some protection against the payment practices and policies of larger, more financially stable companies?
The down side for a large business failing to comply is both financial and moral. Not good for customer confidence, public image or share price. Not to mention the supply chain.
The upside is for good practice and honest payment terms. Easy to attract suppliers for tenders, attractive to investors, marketing gold dust and, might I suggest, good for the soul. Being known as a good payer in the construction industry could be worth a fortune.
Visit the website ppc.promptpaymentcode.org.uk where the companies that are registered are listed.