The landscape of supplier payments across every industry in the UK has undergone a significant transformation with the introduction of the new Fair Payment Code (FPC).
In a recent Causeway webinar, Philip King - former CEO of the Chartered Institute of Credit Management - shed some much needed light on this important development for businesses across the UK, particularly those operating in the construction sector. With his extensive background in credit management, Philip offered valuable perspectives on how businesses can not only comply with the new Code but leverage it for competitive advantage.
This article distills the key insights from that discussion (also available to watch OnDemand here), exploring how the Fair Payment Code principles of being Clear, Fair, and Collaborative can strengthen a business's relationships and financial efficiency.
What is the Fair Payment Code?
The Fair Payment Code is a UK initiative that replaced the Prompt Payment Code.
It is designed to be more ambitious, robust, and aspirational than its predecessor, encouraging businesses to pay their suppliers promptly and fairly.
For more information on the Fair Payment Code, its awards and how it differs to the Prompt Payment Code (PPC) read our the new Fair Payment Code explained article here.
What happened to the Prompt Payment Code?
The Prompt Payment Code, which was formed in 2008, has been discontinued and replaced by the Fair Payment Code. All previous Prompt Payment Code signatories are not automatically transferred to the Fair Payment Code; businesses need to apply separately.
What are the core principles of the Fair Payment Code?
The Fair Payment Code is built on three core principles:
- Clear: establish clear payment terms, ensure suppliers understand them, put terms in writing, and communicate promptly about any payment delays.
- Fair: paying suppliers within agreed terms, accepting consequences like late payment interest when delays occur, and avoiding disputes where possible.
- Collaborative: proactively working to avoid conflicts, facilitating early resolution of disputes, and promoting fair payment practices across the industry.
Is it mandatory to apply?
No, the Fair Payment Code is voluntary. Currently, there are no known plans to make it mandatory, although the Government may issue further consultations on late payment.
How does the Fair Payment Code impact statistics published every six months on the Government website?
The Fair Payment Code aligns with the Government’s commitment to payment transparency, contributing to the biannual reporting of payment practices published on the Government website.
Large businesses that report under the Payment Practices Reporting Regulations (PPR) are required to disclose payment performance data, including the percentage of invoices paid within 30 and 60 days. Companies certified under the Fair Payment Code (particularly at the Gold level) are likely to demonstrate stronger compliance with prompt payment benchmarks, improving overall industry statistics on supplier payments.
As the Fair Payment Code becomes more widely adopted, the Government may incorporate the Fair Payment Code's compliance levels into published reports, helping businesses and suppliers identify which companies are leading in ethical payment practices.
What are the different award levels of the Fair Payment Code?
The Fair Payment Code has three award tiers:
- Gold award: Pay at least 95% of all invoices within 30 days.
- Silver award: Pay 95% of all invoices within 60 days, including 95% of invoices to small businesses within 30 days.
- Bronze awards: Pay at least 95% of all invoices within 60 days.
Learn more about why construction contractors should strive for the gold award.
Is it worth applying for a bronze award?
Yes, achieving bronze recognition is valuable and demonstrates your commitment to fair payment practices, but this will be dependent on an individual organisations circumstance and reason for applying for the award.
The tiered system is designed to be aspirational, encouraging businesses to start at bronze and then work their way up to silver and gold over time. It is possible to move between awards during the two-year cycle.
How long does the award last?
The award is valid for two years. If it is granted outside the normal application cycle (September to December), it will be valid for a shorter period, ending at the end of the next cycle.
How do I apply for the Fair Payment Code?
- Visit the Small Business Commissioner website: https://www.smallbusinesscommissioner.gov.uk/fpc/how-to-apply-expression-of-interest/.
- Express your interest in applying.
- You'll receive guidelines, summaries, and an application form.
- Complete and submit the application form with supporting evidence.
- Provide references (including at least one small business*).
- Submit payment practice data and standard terms.
- The Small Business Commissioner's office will evaluate your application.
*A small business is deemed to be a business with less than 50 employees.
For construction-specific considerations when applying, our Fair Payment Code explained article provides additional industry context.
What evidence is required for the application?
For large companies, you need to provide payment practice reporting data that you submit to the Government portal. For smaller companies not required to report this data, you need to provide data from your accounting software showing when you pay invoices, along with a copy of your standard payment terms.
How many months of data are required as evidence when applying for the Fair Payment Code?
Applicants must provide sufficient historical payment data to demonstrate compliance with the Fair Payment Code’s standards. While companies transitioning from the Prompt Payment Code may already have detailed payment records, the Fair Payment Code requires specific evidence of payment performance, including payments to small suppliers.
For companies that have only recently started tracking small business payments separately, the Small Business Commissioner generally expects at least three to six months of verifiable data.
Companies should refer to the latest guidance from the Small Business Commissioner for precise requirements, as submission expectations may evolve alongside Government reporting standards.
Do I need to provide references?
Yes, you need to provide references to support your application.
One reference must be from a small business with less than 50 employees. You must obtain their agreement before applying, as the Small Business Commissioner will contact them.
Can small businesses apply for the Fair Payment Code?
Yes, businesses of any size can apply for the Fair Payment Code.
However, the application process might be more challenging for micro and small businesses due to the data requirements. Despite this, there have been examples of very small businesses (even with just two employees) successfully achieving gold award status.
How long does it take to go through the Fair Payment Code application process?
The Office of the Small Business Commissioner (OSBC) on behalf of the Department for Business and Trade (DBT) have stated that it will take 10 working days from receipt of all the information required to apply.
One barrier to this timescale is reference checking. It is advised that any organisation put forward as a reference is advised that they will be contacted for verification.
What constitutes a referee when applying for the Fair Payment Code?
When applying for Fair Payment Code certification, businesses must provide at least two supplier references, one of which must be a small business (less than 50 employees).
A referee should be a current supplier or subcontractor who can verify the company’s adherence to the Fair Payment Code's payment standards, particularly timely and fair payments. The referee should ideally:
- Have had a business relationship with the applicant for at least three to six months.
- Be able to confirm payment timeliness and contractual fairness.
- Provide independent verification, meaning they should not be parent companies, subsidiaries, or related entities.
Businesses are encouraged to proactively maintain strong relationships with suppliers to ensure positive references, as a strong referee statement can reinforce Fair Payment Code eligibility.
How do I identify which suppliers are "small businesses"?
This is one of the biggest challenges in implementing the code. A small business is defined as having less than 50 employees. Methods to identify them include:
- Directly asking your suppliers.
- Using credit reference agencies (though this comes at a cost).
- Reviewing company reports that indicate employee numbers. Currently, there is no simple database that provides this information automatically.
What are the common barriers to implementation?
Common barriers include:
- Business culture that doesn't prioritise prompt payment.
- Inefficient approval processes.
- Inadequate record-keeping of payment data.
- Weak processes for matching goods received notes to orders and invoices.
- Challenges in identifying small suppliers.
What happens if a business doesn't follow the Fair Payment Code after receiving an award?
The Small Business Commissioner has established a complaints process. If a supplier complains about an awardee not complying with the Fair Payment Code:
- The Commissioner will engage with the awardee to understand the issue.
- They will work with the business to address and resolve the problem.
- If issues persist, the Commissioner reserves the right to remove the company from the Fair Payment Code.
How is compliance with the Fair Payment Code measured?
Compliance is primarily measured through the payment performance data submitted during the application and the ongoing adherence to the principles. For large businesses, the payment practice reporting data submitted to the Government will be used as evidence.
How often does data have to be submitted to maintain compliance?
Data must be submitted every two years to maintain or improve upon the current award status. However, if an application is submitted outside of the application cycle (September to December), data will have to be submitted again at the next application cycle, not two years after application.
This is to keep the data as relevant as possible and awardees engaged within this ongoing process, which is a marked difference from the Prompt Payment Code.
Do we need both the Fair Payment Code and the Reporting on Payment Practices and Performance (RoPPP)?
Both the Fair Payment Code and the Reporting on Payment Practices and Performance (RoPPP) serve distinct but complementary purposes.
Reporting on Payment Practices and Performance is a mandatory requirement under the Payment Practices Reporting Regulations (PPR), requiring large businesses (over £36 million turnover) to publicly disclose payment data every six months.
The Fair Payment Code is a voluntary initiative, recognising businesses for ethical payment behaviour through a tiered award system (gold, silver, bronze).
While simplifying these frameworks into a single robust guidance document could reduce administrative complexity, the Fair Payment Code provides a qualitative assessment of ethical payment practices that goes beyond statutory reporting. Businesses that comply with RoPPP can use this data to support a Fair Payment Code application, creating a clearer link between regulatory compliance and best practice recognition.
Discussions around further alignment of RoPPP and the Fair Payment Code may continue, particularly as the Government explores stricter enforcement of payment performance in procurement.
Why should my business apply for the Fair Payment Code?
From a public sector perspective, some Government and local authority contracts will stipulate a Fair Payment Code award criteria for participation in the bidding process.
Other benefits include:
- Enhanced reputation as a responsible business.
- Building confidence in your supply chain.
- Gaining a recognised "kite mark" that can be used on company materials.
- Potential competitive advantages when bidding for contracts.
- Demonstrating your commitment to good supplier relationships.
- Setting your business apart from competitors who haven't applied.
This is all about investing in your supply chain. As explained in our Fair Payment Code for construction article, it is as much to do with smaller businesses wanting to work with you on future projects (especially when skills are in short supply) as it is gaining a competitive advantage over those that have not applied.
How can the Fair Payment Code benefit the wider industry?
By promoting fair payment practices across the industry, the Fair Payment Code aims to improve cash flow throughout supply chains, especially for smaller businesses. This can lead to healthier business relationships, reduced disputes, and overall economic growth.
Will the accounting profession be involved with the Fair Payment Code?
There are plans to require businesses (particularly large ones) to report their payment practices within their annual accounts. When this happens, auditors and accountants will naturally become involved in verifying this information, which may lead to increased awareness and promotion of the Fair Payment Code within the accounting profession.
Time to act: embracing the Fair Payment Code for future success
The Fair Payment Code represents a transformative shift in UK business payment practices, moving beyond the Prompt Payment Code (PPC) to establish a more rigorous framework with meaningful accountability. As we transition toward this new payment culture, with expectations that 30-day terms could become standard in future regulations, the time to adapt is now. Organisations that delay implementation risk reputational damage, reduced business opportunities, and potential financial penalties.
The Fair Payment Code isn't just changing how businesses handle payments, it can be a strategic advantage that's redefining what it means to be a trusted and viable partner in today's business environment.
For a deeper understanding of how the Fair Payment Code impacts the construction industry, read our in-depth analysis: the Fair Payment Code explained: what it means for construction.
