Time to get paid

ACE’s legal and compliance director Sally Partridge offers some advice on the best practice arrangements in place to help companies get paid.

In an increasingly competitive market, the issue of timely and certain payment terms becomes even harder to negotiate for fear of upsetting future relationships with either direct clients or others within the supply chain.

Organisations who are keen to build healthy and long-standing working relationships with their suppliers should respect the need to pay on time and in accordance with contractual terms. Equally suppliers should not be afraid of utilising the many tools that have been put in place to assist with payment.

In 2008 the Office of Government Commerce introduced the Guide to Best Fair Payment Practices which applied to all government contracts and the model “Fair Payment Charter” against which clients were requested to monitor compliance.  This included payment terms within 30 days.

This was followed by the Institute of Credit Management’s Prompt Payment Code. Organisations that carry the PPC logo have committed to the good practices prescribed in the code.  Should payment periods start to slip the signatory status can be flagged to the organisation carrying the logo (copied to its board) flagging that the commitment has been breached.

The Construction Charter was released on 22 April 2014 and contains an aspiration to achieve 30 day payment terms by 2018.  It is hoped that the Charter will help to influence the payment culture within the industry.  It is possible to review the signatories that have endorsed the values promoted by the initiative. Late payment concerns can be reported either directly to the organisation (including its board) or via alternative methods such as raising it with a membership association or consider reporting it anonymously to the Cabinet Mystery Shopper scheme.

Agreeing payment provisions as part of the overall contract terms at the outset and prior to undertaking any commission is vital.  In all central government contracts 30 days is recognised as best practice within the Construction Industry.

The Construction Act has been subject to various amendments since its introduction in the late 1990s, but the essential characteristic that has been maintained is that “pay when paid” is prohibited.    The “Due Date” for payment should be defined simply, agreed and understood well in advance of the first Due Date. It should not be dependent on terms further up the supply chain.  There are potential remedies available for failing to pay in accordance with the agreed terms such as suspension of all or part of the services or referral to adjudication.

Some clients advertise access to “Early Payment Facilities”.  Several schemes have been introduced in recent times seeking to address certainty of payment.  If there is a need to engage with Organisations on this basis it is important that the scheme is understood in its entirety and whether it introduces a requirement in which some form of payment or discount is required in order to receive payments which could be at potential odds with legislation and best practice. 

The Late Payment of Commercial Debts Regulations 2013 creates a statutory right to interest 30 days after the date of an invoice (unless another payment period has been negotiated in the contract).  It applies to transactions between undertakings or between undertakings and public authorities and although it doesn’t harmonise payment periods per se it does introduce the right to interest after 30 days.  The regulations clearly confirm that public authorities have to pay for the goods and services they procure within 30 days or be subject to the application of interest.  Other enterprises are required to pay within 60 days (unless otherwise agreed) or be subject to the application of interest and if a longer period is effected it must not be grossly unfair

Project Bank Accounts (PBAs) are being promoted on public sector works and should eventually allow for all payment periods within the entire supply chain to be aligned when a PBA is used.

The Cabinet Office runs a Mystery Shopper Scheme which includes spot –checks of procurement and contract management process and as such has a facility to lodge complaints/enquiries about poor or unfair payment practices on public sector contracts. 

The data from the scheme enables government to understand the impact of poor payment practice which in turn helps ultimately to inform policy and possible legislation to address such problems.

The Governments BIM and Soft Landings initiatives promote and encourage collaborative working through the supply chain and signatories to a BIM Project should necessarily be advocating best practice in payment terms to enable the most efficient delivery processes.

A good relationship with clients is always key to a successful business and cashflow is equally important to thrive and grow.  Knowledge of the various voluntary codes, legislation and schemes available provides key information to engage with clients in order to achieve a mutually acceptable outcome focussed on delivery, efficient process and reflecting best practice.  This in turn enables investment in growth opportunities presented by the gradual economic recovery.