Fair Payment Codes without enforcement will fail. Here is the alternative

A pattern that keeps repeating

The Prompt Payment Code, introduced in 2008, asked signatories to pay 95% of invoices within 60 days. Compliance was patchy, drop-outs were quiet, and the small businesses the code was designed to protect went on absorbing the cost. In 2021 the bar was tightened to 30 days for SMEs. Compliance got worse, not better. By 2024 the scheme had been rebranded again, this time with Gold, Silver and Bronze tiers, an updated dispute mechanism and a fresh launch. The structure is sharper. The underlying mechanism is identical. Companies sign because signing looks good. They drop out, or quietly underperform, when meeting the standard becomes inconvenient.

Why voluntary codes do not change behaviour

Voluntary codes work in two narrow circumstances. They work when the cost of breaching is reputational and the signatory cares about reputation in the relevant market. They work when there is a credible auditor with the authority to remove non-compliers in a way that customers and regulators notice. Late payment by large corporates against small suppliers fails both tests. The reputational cost is borne by an obscure office that issues press releases. The audit happens through self-reported data that is rarely contested. The signatory is a finance function whose KPIs reward holding cash longer.

The economics make the case for enforcement self-evident. The Federation of Small Businesses estimates that UK late payment as a data problem costs the average affected SME around £22,000 a year, and that around 50,000 small businesses close each year due to cashflow problems linked to delayed payment. The aggregate transfer from small suppliers to large customers, in the form of free working capital, runs into tens of billions of pounds. A voluntary scheme cannot recapture this. The incentive to delay is too strong, and the cost of breach too low.

The alternative is already on the statute book

The alternative is not a new code. It is connecting the codes and reporting regimes that already exist to consequences that already exist.

Three pieces are already in place. First, the Reporting on Payment Practices and Performance Regulations 2017 require large companies to publish their payment performance every six months. The data is public, structured and auditable. Second, the Procurement Act 2023 came into force in February 2025 and gives contracting authorities the power to exclude suppliers based on poor performance. Third, the Small Business Commissioner has investigative powers and a complaints mechanism, even if its enforcement teeth are limited.

Connecting these would give Britain an enforcement model without writing a new statute. Payment performance data, already reported, becomes the evidence base. A defined breach standard, for example failure to pay 95% of SME invoices within 30 days across two consecutive reporting periods, becomes a procurement disqualifier under existing Procurement Act powers. The Small Business Commissioner is given the authority to certify or contest signatory data, with a public register that funders, auditors and procurement teams can rely on. The scheme stops being a marketing badge and becomes a condition of doing business with the public sector.

This is the model that turned Modern Slavery Act statements from a paperwork exercise into something procurement teams actually read: a low-cost reporting obligation, a high-cost downstream consequence (loss of contracts), and an independent body whose findings carry weight. The Fair Payment Code has the reporting and the body. It needs the consequence.

The objections, on inspection

The objection to enforcement is usually that it punishes companies in live dispute, or that 30 days is unworkable for some sectors. Both can be addressed through the design of the threshold rather than the absence of one. Disputed invoices can be carved out, as they already are in the reporting regime. Sector-specific terms can be negotiated, as they are in construction. What cannot be designed around is the absence of a credible cost for non-compliance.

Late payment is a data problem

The deeper point is that late payment has been treated as a behavioural problem when it is, structurally, a data problem. The data exists. The supplier-level evidence sits inside every large company's ledger and inside the public reporting regime. What is missing is the connection between that evidence and the contracts, ratings and procurement decisions that would make payment behaviour material. Until that connection is made, the Fair Payment Code is signal without substance.

The next eighteen months

The next eighteen months will tell the story. If the Fair Payment Code follows its predecessors, the signatory list will grow, headline statistics will improve at the top end, and the underlying performance against small suppliers will flatline or worsen, as it did from 2021 to 2024. If the procurement linkage is made, even informally at first, the calculus changes. Finance teams stop optimising days payable outstanding against reputational cost they do not pay, and start optimising it against contract eligibility they do.

Codes without enforcement are decoration. The alternative is not more regulation; it is using what is already on the books.

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