Compliance
Prompt Payment Code
A voluntary UK code committing signatories to pay suppliers within defined periods, overseen by the Small Business Commissioner.
Definition
The Prompt Payment Code is a voluntary commitment on payment practices, administered by the Office of the Small Business Commissioner. Signatories undertake to pay suppliers within agreed periods and to deal fairly with invoices and disputes. It is separate from statutory rights under the Late Payment of Commercial Debts (Interest) Act 1998, which apply whether or not an organisation has signed anything, and separate again from the contractual payment terms imposed on public sector suppliers by procurement policy.
How it works in practice
Following a 2021 reform, signatories commit to paying small suppliers, defined as businesses with fewer than 50 employees, within 30 days, and to paying all other suppliers within 60 days. Signatories also commit to clear guidance for suppliers, to prompt notification of invoice problems, and to avoiding practices that delay payment artificially. A company signs at board level, and a named director takes responsibility for compliance.
For public sector suppliers the code sits alongside a harder obligation. Central government contracts carry a 30 day payment requirement that flows down the supply chain, and PPN Prompt Payment (PPN 03) requires bidders on larger central government contracts to demonstrate that they pay 95 per cent of supply chain invoices within 60 days. Failure on that measure can exclude a bidder from the procurement, which makes payment performance a live selection issue rather than a reputational one.
Suppliers bidding for public work should treat payment reporting as evidence to be managed. Large UK companies must publish payment performance twice a year under the payment practices reporting duty, and those published figures are public, checkable, and increasingly cited by buyers. A bid that claims strong supply chain treatment while the published data shows long average payment times is an easy inconsistency for an evaluator to spot.
Common questions
Is the Prompt Payment Code mandatory?
No. Signing is voluntary. However, related obligations are not: statutory interest on late payment applies automatically, large companies must publish payment performance data, and central government procurements can require evidence of payment performance as a condition of bidding.
What happens if a signatory breaches the code?
The administering body can challenge a signatory, require a corrective action plan, and ultimately suspend or remove them from the list of signatories. Removal is public, and for a supplier that has cited the code in bids it creates an awkward gap between claim and record.
Does the code apply to subcontractors?
The code concerns how a signatory pays its own suppliers, which in a public contract means the subcontractors and specialist firms below the prime. This is precisely the flow-down that PPN 03 is designed to test, since the policy intent is that prompt payment reaches small firms rather than stopping at the prime contractor.
How does it differ from statutory late payment interest?
Statutory interest is a legal entitlement that a supplier can claim when payment is late, at a rate set above the Bank of England base rate, together with fixed compensation. The code is a broader behavioural commitment covering payment periods, communication and dispute handling, and it carries no direct financial remedy of its own.
