Scotland’s largest construction trade association, SELECT, has welcomed a major milestone in its long-running campaign for fairer payment terms for small businesses with sweeping reforms to the UK Government’s Prompt Payment Code.

Under the new obligations announced this week (January 19), nearly 3,000 companies which are signed up to the Code will have to pay 95% of small business suppliers within 30 days of invoicing, halving the current time limit.

SELECT has been prominent among industry bodies in highlighting the issue of payment abuse, the severity of which is illustrated by the fact that £23.4 billion of late invoices are currently owed to companies across Britain

To assist and guide its members, the association recently retained the services as a consultant of Professor Rudi Klein, one of the UK’s foremost construction experts and a specialist in the reform of payment systems.

Professor Klein said: “SELECT has been voicing its concerns about this damaging issue for many years now and the reforms to the Code announced this week will go a considerable way to easing some of the pressure on small business owners.

“It is particularly timely, since smaller companies need all the help they can get as the construction sector continues its uphill struggle to emerge from the grip of the pandemic and contribute fully again to the wider economy.”

The move should have an immediate and positive effect on cashflow, one of the greatest dangers to small business survival. According to the Federation of Small Businesses, 50,000 enterprises close their doors every year as a direct consequence of late payment.

Alan Wilson, Managing Director of SELECT, said: “Over years of listening to our members and monitoring their concerns, the problem of late payment has always been at the forefront of the issues that affect them.

“Late payment causes real hardship to businesses and has a knock-on effect. It has hit particularly hard over the course of this year on top of the restrictions the sector has faced, and I believe the reforms will be welcomed by ethical and responsible businesses.

“It is heartening that all our years of lobbying on this subject have secured a tangible result and we can assure our members that we will continue to fight for their place in a fair and competitive business environment.”

The requirement to pay small businesses within 30 days will become effective from July 1 this year. The existing target to pay 95% of larger businesses within 60 days will remain in place.

Changes to the code which come into effect immediately include a requirement for the most senior person in a company to sign the Code personally; acknowledgement that suppliers can charge interest on late invoices; and the enablement of Code administrators to investigate breaches.