Late payment isn’t just a headache for you, it’s putting a strain on your suppliers, too.
20% more companies now report that their average payment times have stretched over 80 days. Along with disrupting your supplier relationships, it puts you in a tough spot when it comes to negotiating better terms or securing those valuable discounts.
To tackle this, the UK Government introduced the Fair Payment Code, which aims to end the late payment culture and help businesses like yours improve cash flow and reinvest in growth.
In this article, we’ll explain how the Fair Payment Code works, what it means for your business, and how AP automation helps you stay on track and pay suppliers on time.
What is the Fair Payment Code?
The Fair Payment Code, launched on December 3, 2024, raises the standard for how businesses should handle payments. It encourages UK companies to pay invoices within a clear, agreed-upon time frame without any delays.
You’re not just ticking a compliance box with the Fair Payment Code, you’re getting recognised for doing the right thing. If your business commits to best payment practices, it can earn one of three levels of recognition: Gold, Silver, or Bronze.
Gold Award – Given to businesses that pay at least 95% of all invoices within 30 days.
Silver Award – Awarded to those paying at least 95% of all invoices within 60 days and 30 days to businesses under 50 employees.
Bronze Award – For businesses paying at least 95% of all invoices within 60 days.
These awards are for businesses like yours that ensure timely payments and foster strong, collaborative relationships with your suppliers.
To qualify for an award, you’ll need to demonstrate that you follow the code’s key principles: being clear, fair, and collaborative with your suppliers in every aspect of your payment process.
The awards are given for two years, but here’s the catch: you’ll need to reapply at the end of that period to keep your award status. This is a great way to maintain top-notch payment practices and show suppliers that you’re committed to maintaining a transparent, respectful, and fair approach to payments year after year.
What Does It Mean For Your Business?
In addition to enhancing your business’ reputation with the award, the code also impacts other key areas of your business.
For Small Businesses:
According to the Federation of Small Businesses, late payments cost UK SMEs an estimated £23.4 billion annually. If you're running a small business, late payments might be draining tens of thousands of pounds from your cash flow and could even be one of the reasons your business struggles to stay afloat. That’s where the government’s FPC comes in. The FPC is designed to help you pay your suppliers on time, directly improving your cash flow. Healthy cash flow will help your business survive and expand, meet day-to-day expenses and avoid any financial storm that comes your way.
For Medium-Sized Businesses:
If your business is medium-sized, this government initiative will directly impact your business, too. The goal is to prevent situations like what happened in 2022, where SMEs were owed an average of £22,000 in late payments, which caused a serious cash flow challenge. By following the FPC, you can ensure you're paying your suppliers on time, which helps release cash that would otherwise be stuck in overdue payments. With more funds available, you can meet your operating costs and invest in growth. Plus, paying on time strengthens your supplier relationships, opening doors to better terms and discounts. In short, the FPC helps improve your business’s financial health so you can keep growing and thriving.
For Large Businesses:
If you're running a large business, the FPC offers more than just a chance to improve supplier relationships. It also brings a boost in transparency. The UK government is increasing reporting duties for large companies and LLPs, requiring you to report on your payment practices, policies, and performance every six months. That includes disclosing the total payments made and the percentage not paid within agreed terms. This helps keep you accountable and ensures you're staying on track with timely payments. By committing to the FPC, you’re increasing financial stability and supplier trust and contributing to a fairer, more efficient business environment, which benefits everyone in your supply chain.
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How Can You Pay Suppliers on Time?
How Can You Pay Suppliers on Time?
24% of surveyed businesses reported that late payments from their customers were due to administrative errors, such as failing to log invoices or other invoicing mistakes, such as misplaced invoices. On top of that, slow approval processes and the sheer volume of invoices, especially during peak seasons, make it even harder to pay suppliers on time. The impact? 34% of businesses say late payments are holding them back from investing in growth.
If you’re still relying on manual processes, these challenges probably sound all too familiar. Invoices get buried in inboxes, approval bottlenecks slow things down, and payment deadlines slip through the cracks. This not only strains supplier relationships but also creates unnecessary cash flow problems, making it harder to plan and operate smoothly.
That’s where AP automation takes off the burden. By digitising invoices, automation ensures nothing gets lost and everything is stored in one central, accessible platform. Automated workflows instantly send invoices to the right people, cutting out approval delays and speeding up payments. For example, Withington Girls’ School reduced their approval time from 2 weeks to just 1 day by implementing invoice automation software. This means that with automated invoicing, your suppliers get paid on time, keeping you compliant with the Fair Payment Code. But the benefits go beyond compliance.
Paying on time strengthens supplier relationships, puts you in a better position to negotiate, and even helps you secure early payment discounts. By eliminating manual inefficiencies, AP automation keeps your cash flow steady, your operations running smoothly, and your finance team focused on value-driven tasks.
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