The UK Labour government has officially launched the Fair Payment Code (FPC), marking a significant step forward in its efforts to combat late payments and improve supply chain practices.
Replacing the Prompt Payment Code (PPC), the Fair Payment Code is designed to set higher standards, ensuring timely payments to suppliers. Addressing this issue is particularly critical for the construction sector, where payment delays have long been a challenge. Late payments not only strain small businesses’ cash flows but also hinder growth and threaten jobs, especially for small and medium-sized enterprises (SMEs).
What is the Fair Payment Code?
A tiered payment framework
The Fair Payment Code is a UK government initiative to ensure faster payments and greater accountability in supply chain management. It introduces tiered payment standards (Gold, Silver, Bronze) to reward businesses for timely payments and improve payment practices.
- Gold: Requires 95% of all invoices to be paid within 30 days.
- Silver: Applies the same 30-day rule for small suppliers but allows up to 60 days for larger ones.
- Bronze: Stipulates payments within 60 days for all suppliers.
This shift represents a significant tightening of the standards compared to the existing Prompt Payment Code. This new approach not only sets ambitious goals but also allows businesses to progressively improve their payment practices.
Who can sign up for the Fair Payment Code?
Any business operating in the UK can apply, provided it commits to the principles of fair and timely payment. The Fair Payment Code mandates that CEOs or Finance Directors must personally sign the application to ensure senior-level accountability.
Enhanced enforcement and accountability
The Payment Practices Reporting Regulations (PPR), updated in October 2024, require large businesses to publish more detailed data on payment timelines and performance. Furthermore, the Small Business Commissioner has been granted expanded powers to investigate breaches, enforce penalties, and provide more visibility into payment performance. Non-compliance will result in public exposure, removal of Fair Payment Code certification, as well as the potential risk of fines or even criminal charges.
Retentions and reporting requirements
While the Fair Payment Code does not yet include mandatory reporting on retentions, this area remains a focus for future regulation. The anticipated legislation will likely integrate retention payment disclosures into annual reporting, bolstering transparency across the construction supply chain.
Liz Barclay, Small Business Commissioner said: “The Fair Payment Code is our response to all those suppliers who begged for a more aspirational, robust and ambitious approach to changing the business to business payment culture in the UK. It also gives a clear signal of intent on the part of Government."
Construction industry leadership in compliance
The launch of the Fair Payment Code has already driven compliance efforts in the construction industry:
- Kier Group continues to leverage its Gold-tier compliance for competitive advantage, highlighting its commitment to supplier relationships.
- EKFB, a key HS2 contractor, uses monthly scorecards to track supplier payment performance, setting a benchmark for transparency and accountability.
Real-life lessons: the cost of poor payment practices
ISG: industry turmoil
The collapse of ISG in September 2024 left over 2,000 employees jobless and disrupted the supply chain with over £190 million in unpaid invoices. This case exemplifies the cascading financial challenges caused by late payments, particularly for subcontractors reliant on steady cash flow.
Hadden Construction: supply chain fallout
Hadden Construction’s administration in November 2024 resulted in a £6.7 million loss to its supply chain. For smaller businesses, such losses are often catastrophic, underscoring the need for regulatory interventions like the Fair Payment Code.
The broader impact on SMEs and the construction sector
SMEs, which contribute two-thirds of private-sector employment in the UK, stand to benefit significantly from the Fair Payment Code.
- Faster Payments: The new Gold standard ensures 30-day payments, unlocking vital cash flow for small businesses.
- Transparency: Improved reporting requirements foster trust across the supply chain.
- Investment Opportunities: With predictable income, SMEs can focus on growth and innovation.
By addressing these issues, the Fair Payment Code provides the construction industry with an opportunity to lead by example, ensuring fairness and sustainability across the supply chain.
A strategic opportunity
The Fair Payment Code is part of the Labour government’s broader strategy to enhance supply chain resilience and support SMEs. For the construction sector, compliance with these standards is more than a legal requirement – it is a chance to strengthen supplier relationships, mitigate risks, and drive positive change across the industry.
Learn more about how digital tools such as Causeway Tradex, can streamline compliance and support your business’s payment practices.
