PPC: On Late Payment β€” Regulate, Shame or Just Deal with It?

DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group
May 21, 2019

There was some recent shaming of some very large companies by the UK government that did not comply with the Prompt Payment Code (PPC). Seventeen large companies, including heavyweights such as Vodafone, Rolls Royce, SSE and British Sugar, were suspended pending promises to fall into line.
Now, the PPC is not a UK government regulation, but standards for payment practices and best practice is administered by the Chartered Institute of Credit Management (CICM), the largest professional credit management organization in Europe. The basic standard promotes 30-day payment terms as the norm and includes a maximum 60-day payment term (defined as paying 95% of invoices within 60 days, unless there are exceptional circumstances). Compliance with the principles of the code is monitored and enforced by the Prompt Payment Code Compliance Board. The code covers prompt payment, as well as wider payment procedures.


A few things came to mind as I thought back on the PPC:

  1. First, what a great way to look like you are serving the needs of small business, by shaming large companies and potentially withholding government contracts. Mom, Apple Pie and Prompt Payment!
  2. What a great story for vendors that play in the Early Pay space β€” if the value proposition doesn’t get a foot in the door β€” the FUD will now give you a pass in.
  3. I was reminded of the failure of White House Supplier Pay program β€” in which I had an opportunity to visit the White House back in 2014 β€” see several posts here and here. It also reminded me, while only five years ago, it seems like a lifetime.
  4. Sixty days seems like a reasonable time to pay anyone, so anything moving beyond 60 is really just a game of leverage β€” do you want the business or not?

The fact is, large buyers are extending terms to preserve working capital across industries because, well, they can. The Hackett Group\’s 2018 survey shows this nicely:

As part of maximizing days payable outstanding (DPO) to reduce working capital needs, many of these large companies have or will implement various early pay opportunities for their suppliers (bank-led supply chain finance, dynamic discounting, payable auction services, and card programs for the long-tail).

The UK government has been the only active government that is trying to address payment term extension, literally providing transparency into what has always been a private business-to-business contractual event. It certainly has popular support in this day and age of populism and resentment of big business (i.e., β€œBreak up the techs”), and it appears some progress is being made. It certainly takes stamina and diligence to keep this going, and it appears for now, the UK government is willing to ensure signatories honor their pledge or kick them out.

Short of legislation, shame can be a tool. But when we think of the damage that large corporates have done far beyond late payment (i.e., Purdue Pharma & the opioid crisis, Lehmans & the Financial crisis, etc.) without paying any price, you have to wonder how effective shaming will be.

So maybe we just need to deal with it, and make sure early pay options are available to suppliers that can’t afford to wait 60, 75 or more days to get paid.

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