Credit, Collections & Insolvency News
What does the PPC mean to credit managers?
The Prompt Payment Code (PPC) was introduced in 2008 to improve and administer businesses payment terms. The primary objectives are to ensure suppliers are paid on time and that clear guidance is given regarding payment terms. More specifically, signatories undertake to pay suppliers within a maximum of 60 days and are expected work towards a 30 day norm. To date, the code has attracted many high profile supporters such as HSBC, Royal Bank of Scotland and Lloyds Bank.
Recent success stories include central government departments committing to the target of paying 80% of undisputed invoices within five days, the introduction of a government Small Business Commissioner who will provide advice on payment disputes and a ‘mystery shopper’ service, where suppliers can report late payment and poor procurement practice for public sector contracts.
A vital part of the code is the signatories’ commitment to reporting those who do not adhere to the terms. Without repeat offenders being ‘challenged’, it will lose its legitimacy. The PPC website allows organisations to report issues with a view to instigating a dialogue between the relevant parties, assisted by the Chartered Institute of Credit Management (CICM). Recent reports state this has resulted in invoices being settled quickly, with improved payment terms.
Unfortunately, this can’t be relied on as the primary method of regulation. A Code Compliance Board has recently been formed which will enforce the requirement for signatories to report annually on their payment performance. This ties in well with the changes to the Small Business, Enterprise and Employment Act 2015. From 6 April 2017, it states that it is a statutory duty for large businesses to report on payment practices. This includes statistics on time taken to pay invoices and those that were not paid within agreed terms.
The introduction of mandatory reporting requirements is a step in the right direction but it is how these results are treated that will make the real difference. The PPC’s advisory board will review the reports and establish those organisations that are non-compliant. Said organisations will have their PPC status revoked and name published in a monthly bulletin. As for the impending changes to the Act, to date there has been no indication of the repercussions for poor results; however, they will be made available to the public as a deterrent.
Both sets of data will be a valuable tool for credit managers in approving credit facilities. There are of course many tools already available which provide credit scores and detailed company information, however, the basis for the scores generally isn’t specified. The published reports will allow credit managers to review a wealth of information that they aren’t currently privy to, giving them more control over and confidence in the decision making process.
Going forward, the success of the PPC is heavily reliant on the SME market and although they may not be bound by the changes to the Act, seeing the benefits should encourage more businesses to enrol as signatories to ensure a consistent level of transparency across the board.
Ashley Speak, Administrator National Creditor Services at Moore Stephens