Prompt payment

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Prompt payment is a commercial discipline which requires businesses to:

Contents

It is the opposite of late payment, to which the European Union's Late Payments Directive and the Late Payment of Commercial Debts (Interest) Act 1998 in the United Kingdom are directed. Prompt payment may also be contrasted with excessively long or grossly unfair payment terms, such as payment terms in excess of 60 days, even where such terms are honoured by the business making payment. Other terminology adopted to express this discipline includes "fair payment", for example in the construction industry, [1] and "responsible payment", a term used by the UK Government when countering what was seen as a "late payment culture". [2]

The Prompt Payment Initiative

In 2023, formsome.com (a business directory and payment review website) has developed the Prompt Payment Initiative - a set of good payment standards or practices that registered businesses pledge to abide by every 12 months. [3] By becoming a Signatory of the Prompt Payment Initiative, the business can have their profile marked with a badge which enhances its credit reputation with stakeholders.

United Kingdom

In the UK, businesses are encouraged to sign the Prompt Payment Code [4] to testify to their commitment to adopting a prompt payment culture. As at 15 August 2016, 1831 businesses had signed the code. The Code is hosted and administered for the UK government by the Chartered Institute of Credit Management. The government issued a consultation document in February 2015 aimed at "challenging grossly unfair payment terms" and "strengthening the Prompt Payment Code", [5] and a further "Call for Evidence" in October 2018 aimed at "creating a responsible payment culture". [2] Section 3 of the Small Business, Enterprise and Employment Act 2015 [6] made further provision for companies to have a "duty to publish report on payment practices and performance" (subject to regulations which, as at August 2016, had not yet been brought forward). The government also made provision in section 28 of the Enterprise Act 2016 to penalise delayed payment of insurance claims. [7] Companies wishing to improve their payment practices are invited to complete and submit a PPC Action Plan outlining their improvement intentions and related timescales. [8]

The first investigation undertaken by the Groceries Code Adjudicator, announced on 5 February 2015 and reported in January 2016, looked into the supply chain practices of Tesco plc and found evidence that Tesco supplier payments were being frequently delayed. [9] [10]

In April 2019, Sisk Group was removed and six other major construction businesses were suspended from the UK Government’s Prompt Payment Code for failing to pay suppliers on time. [11] A further 18 companies were removed from the list in July 2019. [12]

Central government departments, their executive agencies and non-departmental public bodies in the UK are required to take suppliers' approaches to prompt payment into account when awarding "major contracts", i.e. contracts with an anticipated value over £5 million per year. [13] A supplier's "approach" is assessed by including a standard set of questions within tender documentation issued after 1 September 2019, which are concerned with ensuring that major contract suppliers operate "an effective and reliable supply chain management system" which pays suppliers promptly, including suppliers and sub-contractors of any tier in the supply chain which "execute any works, supply any products or provide any services" substantially for the major contract. Cabinet Office guidance states that "payment of 95% of all supply chain invoices (excluding internal payments between parts of the same company) within 60 days is considered an appropriate measure of overall payment promptness". [14]

United States

In the United States, prompt payment of federal government supplier debts is enshrined in Title 31 of the United States Code, chapter 39 being known as the 'Prompt Payment Act'. The California Legislature has implemented a comprehensive series of laws known as the 'prompt payment statutes'.

Related Research Articles

<span class="mw-page-title-main">Accounts payable</span> Money owed by business to its suppliers

Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. An accounts payable department's main responsibility is to process and review transactions between the company and its suppliers and to make sure that all outstanding invoices from their suppliers are approved, processed, and paid. The accounts payable process starts with collecting supply requirements from within the organization and seeking quotes from vendors for the items required. Once the deal is negotiated, purchase orders are prepared and sent. The goods delivered are inspected upon arrival and the invoice received is routed for approvals. Processing an invoice includes recording important data from the invoice and inputting it into the company's financial, or bookkeeping, system. After this is accomplished, the invoices must go through the company's respective business process in order to be paid.

Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.

<span class="mw-page-title-main">Purchase order</span> Commercial document

A purchase order, often abbreviated to PO, is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services required. It is used to control the purchasing of products and services from external suppliers. Purchase orders can be an essential part of enterprise resource planning system orders.

An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer.

E-procurement is the business-to-business or business-to-consumer or business-to-government purchase and sale of supplies, work, and services through the Internet as well as other information and networking systems, such as electronic data interchange and enterprise resource planning.

In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.

<span class="mw-page-title-main">Business-to-business</span> Commercial transaction between businesses

Business-to-business is a situation where one business makes a commercial transaction with another. This typically occurs when:

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.

Supplier diversity refers to the use of minority-owned businesses as suppliers, and a supplier diversity program is a proactive business program which encourages such use within an organisation's supply chain. Minority-owned includes black and minority ethnic business ownership, women owned, veteran owned, LGBT-owned, service disabled veteran owned, historically underutilized business, and Small Business Administration (SBA)-defined small business concerns. The Hackett Group refers to "approximately 16 categories" covering various aspects of supplier diversity. It is not directly correlated with supply chain diversification, although utilizing more vendors may enhance supply chain diversification. Supplier diversity programs recognize that sourcing products and services from previously under-used suppliers helps to sustain and progressively transform a company's supply chain, thus quantitatively reflecting the demographics of the community in which it operates by recording transactions with diverse suppliers.

Procurement software refers to a range of business software designed to streamline and automate purchasing processes for businesses and organizations. By managing information flows and transactions between procuring entities, suppliers, and partners, procurement software aims to cut costs, improve efficiency, and boost organizational performance.

Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.

Government procurement or public procurement is undertaken by the public authorities of the European Union (EU) and its member states in order to award contracts for public works and for the purchase of goods and services in accordance with principles derived from the Treaties of the European Union. Such procurement represents 13.6% of EU GDP as of March 2023, and has been the subject of increasing European regulation since the 1970s because of its importance to the European single market.

<span class="mw-page-title-main">Government procurement</span> Purchases by a government body

Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a substantial part of the global economy.

<span class="mw-page-title-main">Late Payment of Commercial Debts (Interest) Act 1998</span> United Kingdom legislation

The Late Payment of Commercial Debts (Interest) Act 1998 is an Act of the United Kingdom Parliament enabling businesses to charge other business customers interest on overdue accounts and to obtain compensation. The Act extends to England, Scotland and Northern Ireland.

In finance, dynamic discounting describes a collection of methods in which payment terms can be established between a buyer and supplier to accelerate payment for goods or services in return for a reduced price or discount.

Construction law is a branch of law that deals with matters relating to building construction, engineering, and related fields. It is in essence an amalgam of contract law, commercial law, planning law, employment law and tort. Construction law covers a wide range of legal issues including contract, negligence, bonds and bonding, guarantees and sureties, liens and other security interests, tendering, construction claims, and related consultancy contracts. Construction law affects many participants in the construction industry, including financial institutions, surveyors, quantity surveyors, architects, carpenters, engineers, construction workers, and planners.

Supply chain financing is a form of financial transaction wherein a third party facilitates an exchange by financing the supplier on the customer's behalf. The term also refers to practices used by banks and other financial institutions to manage capital invested into the supply chain and reduce risk for the parties involved.

The Groceries Code Adjudicator is an independent statutory office responsible for enforcing the Groceries Supply Code of Practice and to regulate the relationship between supermarkets and their direct suppliers within the United Kingdom. The post was created by the Groceries Code Adjudicator Act 2013 and is an independent office within the Department for Business and Trade.

Electronic invoicing is a form of electronic billing. E-invoicing includes a number of different technologies and entry options and is usually used as an umbrella term to describe any method by which a document is electronically presented from one party to another, either for payment or to present and monitor transactional documents between trade partners to ensure the terms of their trading agreements are being met. These documents can include invoices, purchase orders, debit notes, credit notes, payment terms, payment instructions, and remittance slips.

At around £290 billion every year, public sector procurement accounts for around a third of all public expenditure in the UK. EU-based laws continue to apply to government procurement: procurement is governed by the Public Contracts Regulations 2015, Part 3 of the Small Business, Enterprise and Employment Act 2015, and the Public Contracts (Scotland) Regulations of 2015 and 2016. These regulations implement EU law, which applied in the UK prior to Brexit, and also contain rules known as the "Lord Young Rules" promoting access for small and medium enterprise (SMEs) to public sector contracts, based on Lord Young's Review Growing Your Business, published in 2013.

References

  1. ↑ Bingham, T., Fair Payment under NEC 3 Construction Contracts, published 9 August 2010, accessed 28 November 2020
  2. 1 2 Department for Business, Energy and Industrial Strategy, Creating a Responsible Payment Culture, published October 2018, accessed 12 March 2021
  3. ↑ https://formsome.com/prompt-payment
  4. ↑ Prompt Payment Code
  5. ↑ Department for Business, Innovation and Skills, Late payment: Challenging grossly unfair terms and practices, published February 2015, accessed 8 May 2023
  6. ↑ Small Business, Enterprise and Employment Act 2015
  7. ↑ Enterprise Act 2016
  8. ↑ Small Business Commissioner, PPC Action Plans, accessed 27 July 2023
  9. ↑ "Tesco knowingly delayed payments to suppliers". BBC News. 2016-01-26. Retrieved 23 May 2024.
  10. ↑ Groceries Code Adjudicator, GCA Investigation into Tesco plc, published 26 January 2016, accessed 23 May 2024
  11. ↑ Morby, Aaron (29 April 2019). "Industry giants shamed over late payment". Construction Enquirer. Retrieved 29 April 2019.
  12. ↑ Tyler, R. E., "Dear Bank Manager, is it OK if I pay my mortgage in four months, when I get paid?", Supply Management, October/November 2019
  13. ↑ Cabinet Office, Procurement Policy Note 04/19: Taking account of a supplier’s approach to payment in the procurement of major contracts, published 23 July 2019, accessed 4 April 2021
  14. ↑ UKOpenGovernmentLicence.svg  This article incorporates text published under the British Open Government Licence : Cabinet Office, Guidance on how to take account of a supplier’s approach to payment in the procurement of major contracts , accessed 4 April 2021

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